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Thelatestconsumerpriceindexnumbersmayhaveinvestmentimplicationsforyourportfolio.
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67% whovotedfoundthishelpful

TheBureauofLaborStatisticsinmidSeptemberreportedthattheconsumerpriceindex(CPI)fell0.2%in
Septemberonaseasonallyadjustedbasis.Fallinggascostsdraggeddowntheindexoverall:theenergyindexwas
down4.7%,andfallinggasolinepriceswerethemaincauseofthemovedownforCPIoverall.Onayearoveryear
basis,CPIwasessentiallyunchangedforthe12monthsthroughSeptember.
TheindexesforfoodandforallitemswithoutfoodandenergybothacceleratedinSeptember.Thefoodindexrose
0.4percent,itslargestincreasesinceMay2014.

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Whilesomelevelofinflationishealthyforaneconomy,risinginflationpresentsahostofchallenges.Inparticular,
risinginflationmeansadollartodaywontbuyasmuchinthefuture.Lowerpurchasingpowercanhavea
profoundimpactonyourstandardoflivingifyoudontprepareforit.
Overtime,inflationhasaveragedaround3%ayear,1meaningthatinvestmentshavehadtoearnanannualreturn
of3%ormorejusttokeeppacewithoverallpriceincreasesintheeconomy.
CPIalsocanhelpprovideanindicationofwheretheeconomyisinthebusinesscycletheeconomyscyclical
patternofexpansion,contractionandrecovery.Risinginflationmayoccurwhenthebusinesscyclehassurpassed
itspeak,whiledisinflationwheninflationisgrowing,butataslowingpacemayhintthatthebusinesscycleis
experiencingaslowdown.Deflationoccurswhentheinflationrateturnsnegative,meaningaveragepricesare
falling.Deflationcanbebadnews,becauseitmaysignaleconomicweaknessandrecession.

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Inflationisacriticaleconomicindicatorthathasimplicationsforabroadinvestmentstrategy,buttheresnoneed
toreacttoeverymonthlyCPIrelease.Afterall,thereslittleyoucandotobattletheincrementalincreasesinprices
foreverythingfromgroceriestohaircuts.Butyoucanplanahead,tohelpensurethatthemoneyyousavenowwill

helpyoupayfortheseitemsinthefuture.
Tothatend,considerinflationwhenbuildingyourlongtermassetallocationstrategy.Cashsavingsmayoftenfail
tokeeppacewithinflation(seechartbelow),andthefixedincomestreamfrombondsmaylosepurchasingpower
ifinflationpicksup.Butotherinvestmentshavehistoricallyfaredbetter,notablyhardassetslikecommodities
andrealestatestocksorbonds,orincomeproducingassetsthatadjusttoinflationandrisingrates,suchasTIPS
orleveragedloans.Adiversifiedportfoliooftheseinvestmentshasfrequentlyoutperformedduringperiodsof
risinginflation.
Thisdoesnotmeanthatshortterminflationshoulddriveyouroverallinvestmentstrategy.Butitshouldbea
considerationasyouconstructamixofinvestmentsthatalsotakesintoaccountyourrisktolerance,investment
horizon,andfinancialsituation.
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Investmentswithhardassetorincomeadjustingcharacteristicshavehistoricallyofferedinflationresistance,
particularlywheninvestorsneededitmostasinflationincreased.Combiningassetsintoadiversifiedrealreturn
compositehasincreasedthefrequencyofoutpacinginflationasitrises,adifficulttaskforcashintodayslowrate
environment.

Pastperformanceisnoguaranteeoffutureresults.Diversificationdoesnotensureaprofitorguaranteeagainstloss.Risinginflationmeans
yearoveryearpositivechangeinconsumerpriceindex,fallinginflationisyearoveryeardeclineininflationrate.Itisnotpossibletoinvest
directlyinanindex.Pleaseseefootnotesforimportantindexinformation.Inflationrate:yearoveryearchangeintheconsumerpriceindex.
Assetclassesrepresentedby:cashIASBBIU.S.30DayTreasuryBillIndex;commoditiesBloombergCommodityIndex;compositeportfolio
30%TIPS,25%leveragedloans,25%commodities,10%realestateequity,10%realestateincome;leveragedloansS&P/LSTALeveraged
PerformingLoanIndex;realestatebondsBofAMLU.S.CorporateRealEstateIndex;realestatestocksDowJonesU.S.SelectRealEstate
SecuritiesIndex;TIPS(TreasuryInflationProtectedSecurities)BarclaysU.S.TIPSIndex.Portfolioallocationsheldconstantduringreturn
period;returnscalculatedusingweightedaveragereturnofunderlyingassetclasses.Source:Morningstar,FidelityInvestments(AART),asof
November30,2014.

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ReadFidelityAssetAllocationResearchTeamslatestbusinesscyclecommentary.
Findoutmoreaboutthebusinesscycleapproachtoassetallocationandsectorinvesting.
LearnmoreaboutinflationfromtheBureauofLaborStatistics

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Viewsexpressedareasofthedateindicated,basedontheinformationavailableatthattime,andmaychangebasedonmarketandother
conditions.Unlessotherwisenoted,theopinionsprovidedarethoseoftheauthorsandnotnecessarilythoseofFidelityInvestmentsorits
affiliates.Fidelitydoesnotassumeanydutytoupdateanyoftheinformation.
Investmentdecisionsshouldbebasedonanindividualsowngoals,timehorizon,andtoleranceforrisk.
Pastperformanceisnoguaranteeoffutureresults.
Allindexesareunmanaged,andperformanceoftheindexesincludesreinvestmentofdividendsandinterestincome,unlessotherwisenoted,
andarenotillustrativeofanyparticularinvestment.Aninvestmentcannotbemadeinanyindex.
Neitherassetallocationnordiversificationensuresaprofitorguaranteesagainstloss.
Ingeneralthebondmarketisvolatile,andfixedincomesecuritiescarryinterestraterisk.(Asinterestratesrise,bondpricesusuallyfall,and
viceversa.Thiseffectisusuallymorepronouncedforlongertermsecurities.)Fixedincomesecuritiesalsocarryinflationrisk,liquidityrisk,
callrisk,andcreditanddefaultrisksforbothissuersandcounterparties.Unlikeindividualbonds,mostbondfundsdonothaveamaturitydate,
soholdingthemuntilmaturitytoavoidlossescausedbypricevolatilityisnotpossible.
Stockmarketsarevolatileandcandeclinesignificantlyinresponsetoadverseissuer,political,regulatory,market,oreconomicdevelopments.
Changesinrealestatevaluesoreconomicconditionscanhaveapositiveornegativeeffectonissuersintherealestateindustry,whichmay
affectthefund.
Increasesinrealinterestratescancausethepriceofinflationprotecteddebtsecuritiestodecrease.Leveragedloansinherentlyhavehigher
refinancing/repricingrisk.Unlikeothercreditinvestmentswithnoncallperiodswhenthebondscannotberedeemed,leveragedloansare
callableatparatanytime.Asthebroadermarkettradesabovethelongtermaveragepriceandsomeloanstradeatorabovepar,this
callabilitypresentsanadditionaldownsiderisktoloaninvestors.
Hypotheticalbacktesteddatahasinherentlimitationsduetotheretroactiveapplicationofamodeldesignedwiththebenefitofhindsightand
maynotreflecttheeffectthatanymaterialmarketoreconomicfactorsmayhavehadontheuseofthemodelduringthetimeperiodsshown.
Thus,hypotheticalperformanceisspeculativeandofextremelylimitedusetoanyinvestorandshouldnotberelieduponinanyway.
Hypotheticalperformanceofthemodelisnoguaranteeoffutureresults.
Bonds
TheIASBBIU.S.IntermediateTermGovernmentBondIndexisanunweightedindexthatmeasurestheperformanceoffiveyearmaturityU.S.
Treasurybonds.Eachyearaonebondportfoliocontainingtheshortestnoncallablebondhavingamaturityofnotlessthanfiveyearsis
constructed.
TheIASBBIU.S.LongTermCorporateBondIndexisacustomindexdesignedtomeasuretheperformanceoflongtermU.S.corporatebonds.
BarclaysU.S.AggregateBondIndexisanunmanaged,marketvalueweightedperformancebenchmarkforinvestmentgradefixedratedebt
issues,includinggovernment,corporate,assetbacked,andmortgagebackedsecuritieswithmaturitiesofatleastoneyear.
TIPS
BarclaysU.S.TreasuryInflationProtectedSecurities(TIPS)Indexisamarketvalueweightedindexthattracksinflationprotectedsecurities
issuedbytheU.S.Treasury.
RealEstateFixedIncome
BofAMLCorporateRealEstateIndex,asubsetofBofAMerrillLynchU.S.CorporateIndex,isamarketcapitalizationweightedindexofU.S.
dollardenominatedinvestmentgradecorporatedebtpubliclyissuedintheU.S.domesticmarketbyrealestateissuers.Qualifyingsecurities
musthaveaninvestmentgraderating(basedonanaverageofMoodys,S&P,andFitch).Inaddition,qualifyingsecuritiesmusthaveatleast
oneyearremainingtofinalmaturity,afixedcouponschedule,andaminimumamountoutstandingof$250million.
Stocks
S&P500Index,amarketcapitalizationweightedindexofcommonstocks,isaregisteredservicemarkofTheMcGrawHillCompanies,Inc.,
andhasbeenlicensedforusebyFidelityDistributorsCorporationanditsaffiliates.

Leveragedloans
S&P/LSTALeveragedPerformingLoanIndex(Standard&Poors/LoanSyndicationsandTradingAssociationLeveragedPerformingLoan
Index)isamarketvalueweightedindexdesignedtorepresenttheperformanceofU.S.dollardenominated,institutionalleveragedperforming
loanportfolios(excludingloansinpaymentdefault)usingcurrentmarketweightings,spreads,andinterestpayments.CSFBLeveragedLoans
indexrepresentstradable,seniorsecured,U.S.dollardenominatednoninvestmentgradeloans.
Commodities
CSFBLeveragedLoanIndexmeasurestradable,seniorsecured,U.S.dollardenominatednoninvestmentgradeloans.
S&PGSCICommoditiesIndexencompassestheprincipalphysicalcommoditiesthataretradedinactive,liquidfuturesmarkets.
DowJonesUBSCommoditiesIndexisabroadlydiversifiedindexthatencompassesfuturescontractsonphysicalcommodities.
RealEstateInvestmentTrusts(REITs)
FTSENAREITAllEquityIndexcontainsalltaxqualifiedREITswithmorethan50%oftotalassetsinqualifyingrealestateassetsotherthan
mortgagessecuredbyrealproperty.
TheDowJonesU.S.SelectRealEstateSecuritiesIndexincludesequityrealestateinvestmenttrusts(REITs)andrealestateoperating
companiestradedintheU.S.
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Economiccheckin
TheU.S.economyisonsolidground,buttheglobaleconomyhasntturnedacorneryet.
Q42015marketupdate
Getinsightonwhatdrovevolatilityandwhymoremaybeaheadinourcomprehensivereport.
TakeawaysforQ42015
TheU.S.midcycleexpansionshouldsupportstocks;Chinasstrugglesmaydrivevolatility.
ViewallMarketsarticles

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