A step-by-step guide to building your portfolio

Whether you're just starting out or already investing, this disciplined approach can help you design a personalized portfolio tailored to your specific financial goals
"When people ask me, 'What's the best time to start investing?' my answer is 'Right now,'" says Marci McGregor, head of Portfolio Strategy for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank. "If you've held off because investing seems confusing and you don't know where to begin, just take it one step at a time, starting with identifying what you're investing for," she suggests.
"Just take it one step at a time, starting with identifying what you're investing for."
— Marci McGregor,
head of Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank
Below, she outlines seven key steps to building a portfolio tailored to your specific needs, now and in the long term. Whether you're just starting out or want to revisit your current investing approach, these steps can help get — and keep — you on the right track.

Step 1. Ask yourself: What am I trying to achieve?

"Your financial goals are the 'why' of investing," McGregor says. Make a list of your long-term objectives, such as purchasing a home and saving for education costs or retirement. Next, think about:
  • Your time horizon: When will you need the money for those goals?
  • Your risk tolerance: All investing involves some risk. How much feels right for you, based on your emotions and financial situation?
  • Your cash, or liquidity, needs: Do you anticipate needing to draw on investments to meet regular expenses any time soon?
The investing basics — in 5 minutes video
Press enter to play 'The investing basics in 5 minutes' video
On-screen disclosure:
Please read important information at the end of this program. Recorded on 3/21/2024.
[Chris Hyzy speaking]
Hello and welcome. We know that every day investors are bombarded with noise in the news.
On-screen copy:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
From geopolitical events to the U.S. election cycle, to changes in inflation and interest rates, it's easy to get distracted. Even with all the change going on around us, there are ways to stay focused on your financial goals and your reasons for investing in the first place.
We recently published an Investment Insights report to help you do just that.
On-screen copy:
Read the CIO report "Steer the Course of Your Financial Future:
A Guide for Long-term Investors."
It's called "Steer the Course of Your Financial Future, a Guide for Long Term Investors."
I'm here today with Kirsten Cabacungan, a lead author of the report, to discuss these ideas and what they can mean for you. Kirsten, thanks for joining me today.
[Kirsten Cabacungan speaking]
Thanks for having me.
[Chris Hyzy speaking]
Let's talk about staying grounded and disciplined. That speaks to an investment process. So how do you think about that?
[Kirsten Cabacungan speaking]
For a long-term investor, you want to first know yourself as an investor.
On-screen copy:
Kirsten Cabacungan
Investment Strategist, Chief Investment Office
Merrill and Bank of America Private Bank
You want to establish what are your financial goals? What do you ultimately want to achieve here? And then you want to figure out what are some of the parameters that you have around that?
On-screen copy:
Knowing yourself as an investor:
  • Your financial goals
  • Your risk tolerance
  • Your time horizon
  • Your liquidity needs
"What's your risk tolerance? What's the time horizon?" And those are the things that will help determine what strategic asset allocation you might hold in a portfolio.
The next part of it, though, is the investment process.
On-screen copy:
Consider investments that are appropriate for you
and leverage portfolio construction tools.
You want to have this rigorous process that looks at what are the investments I might hold in my portfolio, and then you want to lean on some of the portfolio construction tools that are available to you, to manage that over time.
But the key part here that I'll mention is that this process is not a set it and forget it type of thing.
On-screen copy:
Revisit your financial goals and investment strategy
on a regular basis, such as once or twice a year.
You want to schedule a regular meeting, maybe that be every half year, every year, to figure out, "Have my goals changed? Has my risk tolerance changed?" Maybe there's been a life event that might adjust some of these characteristics around my investor profile.
So, these are the things that you want to continue to monitor. And staying close to that process helps you to minimize any emotional reactions to things that you might see in the headlines.
[Chris Hyzy speaking]
That's a good point. You use the word anchor, you use discipline, we talked about staying grounded. That's especially important when we talk about volatility.
Is volatility normal? And how could we mitigate some of that?
[Kirsten Cabacungan speaking]
Yes, I would say volatility is normal. Volatility is integral to the investing process, right?
On-screen copy:
Volatility is normal and can offer potential opportunities
to rebalance or add to your investments.
It offers long-term investors, sometimes, an opportunity to rebalance portfolios if a certain area of the portfolio has drifted from the optimal target range or it even offers an opportunity to add to your investments. So, I wouldn't think of volatility as a negative thing. It's normal. It's something to monitor, to understand, but it's integral to a long-term investor's journey.
[Chris Hyzy speaking]
I know on a day-to-day basis, it can be somewhat concerning or fearful. But over time, as you said, those are pockets of opportunity.
And speaking of that, is time an opportunity? Is time on our side?
[Kirsten Cabacungan speaking]
Time is definitely on the side of a long-term investor. Trying to time the market is very challenging. It involves two important decisions: You have to decide when to get out and then when to get back in. And that decision to get back in is very challenging at times.
And if you try to time the market and you're sitting on the sidelines, you also risk the, missing on some of the upside if the market bounces back. So, if you miss even just the 10 best days in a decade, that has historically translated into more dampened returns relative to an investor who had stayed invested through that 10-year period.
[Chris Hyzy speaking]
In some cases, people don't think about having too much cash as a risk, but it could be a reinvestment risk. How do you think about that?
[Kirsten Cabacungan speaking]
Yeah, so, cash yields in the last few years have been definitely compelling…
On-screen copy:
The role of cash:
  • Has a definite place within portfolios
  • Over-allocating to cash has potential risks in
    opportunity costs
  • Could miss out on appreciation in equities
    over the long term
…and there's definitely a place for cash within the portfolio. But over allocating to cash comes with a risk. There's an opportunity cost there. You're missing out some of the appreciation gains that you might find within the equity holdings of your portfolio.
The longer you sit in cash, also, the chances of outperforming equities over a long period of time diminish.
Again, it's rooted back into what are your goals, the long-term financial goals that you have for yourself and how do you achieve that? It's by sticking to your asset allocation.
[Chris Hyzy speaking]
Okay, Kirsten, let's go to the final question. It's about being nimble. We talked about being disciplined, sticking to your anchor, but there's also a need of course correcting, being able to adjust, as we said before, diversification.
Can you talk to that, how important that is?
[Kirsten Cabacungan speaking]
Diversification is very important to a long-term investor's journey. You want to hold a mix of assets within your portfolio, because if you put all your eggs in one basket, it leaves you vulnerable.
On-screen copy:
Potential benefits of diversification:
  • Can help to minimize risk
  • If one area of a portfolio declines,
    another could provide some defense
A mix of assets, a blend of assets, helps to minimize some of the risks. If one area of the portfolio declines, the other areas might provide some defense.
The other part of it is the market is continuing to evolve. The S&P 500, the top leaders today look very different to what they looked like 10 years ago, 20 years ago, 30 years ago. There's different trends and different themes that are driving different leaders. And so that tells us the future will also look different.
So, you want to keep a diversified approach.
[Chris Hyzy speaking]
Excellent. So, staying nimble, being disciplined, sticking to the anchor, course correcting, mitigating volatilities, all about the investment process.
Thanks for joining me, Kirsten.
[Kirsten Cabacungan speaking]
Thanks for having me.
[Chris Hyzy speaking]
And thank you all for joining me. We hope these ideas will help you chart a course for your financial future.
Remember, sticking to a disciplined strategy and staying invested during times of volatility are two of the core principles for doing so. And if you're working with an advisor, be sure to reach out to them directly about what these ideas can mean for you.
On-screen disclaimers:
Important Disclosures
The opinions expressed are as of 03/21/2024 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
All recommendations must be considered in the context of an individual investor's goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
Merrill makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.
Merrill Private Wealth Management is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Private Wealth Advisors through MLPF&S. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill's obligations will differ among these services. Investments involve risk, including the possible lo ss of principal investment.
The banking, credit and trust services sold by the Private Wealth Advisors are offered by licensed banks and trust companies, including Bank of America, N.A., Member FDIC and other affiliated banks.
Bank of America Private Bank is a division of Bank of America, N.A., Member FDIC and a wholly owned subsidiary of BofA Corp. Trust and fiduciary services are provided by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A.
Investment products:
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
© 2024 Bank of America Corporation. All rights reserved. 6506248 - 04/2024
[End of transcript]
[-] Close transcript  for Investing basics in 5 minutes video

Step 2. Decide on your personal investing formula

"Now you're ready to move from why you invest to how — figuring out the right asset allocation, or mix of stocks, bonds, cash and other types of investments to help you pursue your goals," McGregor says. Think of it as your personal formula for investing. In investing, one size doesn't fit all, and your preferred asset allocation will likely differ in many ways from other's. "Research shows that asset allocation is a primary driver of portfolio performance," McGregor adds.Footnote 1
Watch this short video for help determining your appropriate asset allocation.
Press enter to play 'Asset Allocation' video
[Music in background]
On screen disclosure: Please read important information at the end of this program. Recorded on 03/05/2024.
On screen copy: Asset Allocation.
[Vineet Budhraja speaking throughout video.]
Asset Allocation. Think of it as your personal investing recipe, or the blueprint for your portfolio.
[Animated speech bubbles containing the following financial terms.]
On-screen copy:
Bond Ladder
Dividend Yield
P/E Ratio
Asset Allocation
Alternative Investments
Diversification
Total Return
Yield Curve
Market Breadth
Soft Landing
Net Asset Value
Huh?!
What?!
Translation, Please!™
P/E Ratio
Asset Allocation
Your asset allocation basically refers to the mix of investments you select to help you pursue your financial goals.
On screen copy:
Asset Allocation
Vineet Budhraja
Head of Multi-Asset Portfolios, Chief Investment Office
Merrill and Bank of America Private Bank.
You generally have three asset classes to choose from: Stocks, bonds and cash.
[Icons for stocks, bonds and cash appear on screen.]
On screen copy:
Cash. Doesn't offer much growth. Great for major purchases or emergencies. Includes "cash alternatives," such as CDs & money market funds.
[The cash icon appears. As Vineet speaks, each phrase appears on screen in a bullet pointed list.]
On screen copy:
Cash. Doesn't offer much growth. Great for major purchases or emergencies. Includes "cash alternatives," such as CDs & money market funds.
Cash generally doesn't offer a lot of growth. But if you anticipate needing access to funds say for a major purchase or emergencies, you'll want a certain portion of your portfolio in cash — or what's called "cash alternatives," such as CDs or money market funds.
[The stocks icon appears. As Vineet speaks each phrase appears on screen in a bullet pointed list.]
On screen copy:
Stocks. Highest potential for longer-term growth. Can experience price swings. Consider a smaller amount, depending on your comfort with risk. Still important for pursuing long-term growth.
Stocks have the highest potential for longer-term growth — think years or even decades. But they can experience sharp price swings, especially in the short term. If you aren't comfortable with a lot of risk, you could consider owning a "smaller slice" of them in your portfolio. But remember stocks are still important if your goal is to pursue long-term growth.
[The bonds icon appears. Once again, As Vineet speaks each phrase appears on screen in a bullet pointed list.]
On screen copy: Bonds. Don't offer as much growth potential as stocks. But offer regular income payments. Portfolio diversification. Income you don't need today... you can reinvest for tomorrow.
Bonds typically don't offer as much growth potential as stocks, but can offer you regular income payments, as well as provide an important source of portfolio diversification. And if you don't need the income today, you can reinvest it for added growth potential over time.
Here's how they work together:
[An image of a pie appears, divided into 3 slices labelled stocks, bonds and cash.]
On screen copy:
Stocks. Bonds. Cash.
Imagine your portfolio as a pie, cut into three different-sized slices.
[As Vineet mentions the percentage difference of each slice, the slices get bigger and smaller.]
On screen copy:
Financial goals. Comfort with risk. Time horizon. Cash needs.
Because each asset class comes with a different level of risk, as well as certain other characteristics, by selecting the percent of each you want to own, you can design a portfolio that matches your goals, risk tolerance, time horizon and your liquidity, or cash, needs.
Keep in mind, a well-balanced portfolio contains a mix of all three asset classes.
On screen copy:
For a well-balanced portfolio... include a mix of all 3 asset classes.
Because stocks, bonds and cash respond differently in different market conditions, having a certain percentage of each in your portfolio provides important diversification and can help to limit losses in down markets.
On screen copy:
Don't "set it and forget it"
On screen copy: Stocks. Bonds. Cash.
As your goals and life situation change, your mixture of stocks, bonds and cash will likely need to change as well.
On screen copy: Revisit at least once a year.
Consider revisiting your asset allocation at least once a year.
On screen copy: Asset Allocation.
And there you have it: Asset Allocation! Thanks for watching and stay tuned for more Translation, Please videos.
On screen disclosures:
Important Disclosures
The opinions expressed are as of 3/04/2024 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. Bonds are subject to interest rate, inflation and credit risks.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
Merrill makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.
Merrill Private Wealth Management is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Private Wealth Advisors through MLPF&S. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill's obligations will differ among these services. Investments involve risk, including the possible loss of principal investment.
The banking, credit and trust services sold by the Private Wealth Advisors are offered by licensed banks and trust companies, including Bank of America, N.A., Member FDIC and other affiliated banks.
Bank of America Private Bank is a division of Bank of America, N.A., Member FDIC and a wholly owned subsidiary of BofA Corp. Trust and fiduciary services are provided by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A.
Investment products:
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
© 2024 Bank of America Corporation. All rights reserved. 6518935 - 04/2024
[End of transcript]
[-] Close transcript  for Asset Allocation video
Your asset allocation formula will depend largely on your risk tolerance and how much time you have to invest for your goals. With many years to invest, your portfolio might include more stocks, which carry greater short-term risk but over time tend to produce higher returns. If your time horizon is short or you're uncomfortable with risk, bonds might play a greater role. A financial advisor, if you work with one, can help determine the asset allocation that's appropriate for you.
Whether your personal formula favors stocks or bonds, make sure it includes some of each so that your portfolio is diversified. Because stocks and bonds tend to respond differently to market conditions, diversification offers the best chance for long-term growth and protection, McGregor says. Diversify within those asset classes as well — for instance, including exposure to different sectors of the stock market or different types of bonds — and keep in mind that having some cash in your portfolio can help you meet routine or unexpected expenses without having to sell investments.
Check out the video below for more on the benefits of being diversified.
Press enter to play 'Diversification' video
[Marci McGregor speaks throughout]
On screen disclosure: Please read important information at the end of this program. Recorded on 2/29/2024.
You've probably heard the saying, "don't put all your eggs in one basket." And it's smart advice when it comes to investing.
[Animated speech bubbles appear containing the following financial terms]
On-screen copy:
Bond Ladder
Dividend Yield
P/E Ratio
Asset Allocation
Alternative Investments
Diversification
Total Return
Yield Curve
Market Breadth
Soft Landing
Net Asset Value
Huh?!
What?!
Translation, Please!™
P/E Ratio
[Screen focuses on the word "Diversification"]
On screen copy:
Marci McGregor
Head of Portfolio Strategy, Chief Investment Office
Merrill and Bank of America Private Bank.
It's known as diversification and it means including a variety of investments in your portfolio. Both across and within different asset classes, like stocks, bonds and cash.
[As Marci speaks, three baskets appear labelled "Stocks", "Bonds" and "Cash"]
The idea is: the broader the range of investments you hold, the more you can balance out the market's ups and downs over time.
On screen copy:
The broader your investments
The more you can balance out the market's ups & downs
[Three eggs fall in each basket]
That's because each type of investment can behave differently in different market environments.
[The eggs dance around inside each basket in different ways. Marci appears back on screen]
By being well diversified, you could potentially receive some portfolio stability when markets are volatile, while also pursuing long-term growth.
On screen copy:
Diversification = potential stability & long-term growth
Diversification can take different forms.
[The Stocks basket appears. As Marci speaks, the different sectors and emerging markets are written on screen in a list, next to the basket]
On screen copy:
Different types of sectors
  • Technology
  • Healthcare
  • Consumer
On screen copy:
Different types of bonds
  • U.S. Treasuries
  • Corporate
  • Municipal
If you hold bonds, you could consider U.S. Treasuries, and also high-quality corporate or municipal securities. The goal is to spread out your investments so you're not too heavily weighted in any one area.
[Eggs move between the three different baskets]
On screen copy:
Everyone is different
  • Goals
  • Time horizon
  • Liquidity needs
  • Risk tolerance
Remember, everybody's situation is different. The specific mix of investment you decide on will depend on your goals, time horizon, your liquidity needs and your tolerance for risk.
On screen copy: Diversification
And that's what we mean when we talk about diversification! Thanks for watching and stay tuned for more "Translation, Please."
On screen disclosures:
Important Disclosures
The opinions expressed are as of 2/29/2024 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. Bonds are subject to interest rate, inflation and credit risks. Municipal securities can be significantly affected by political changes as well as uncertainties in the municipal market related to taxation, legislative changes, or the rights of municipal security holders. Income from investing in municipal bonds is generally exempt from federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
Merrill makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.
Merrill Private Wealth Management is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Private Wealth Advisors through MLPF&S. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill's obligations will differ among these services. Investments involve risk, including the possible loss of principal investment.
The banking, credit and trust services sold by the Private Wealth Advisors are offered by licensed banks and trust companies, including Bank of America, N.A., Member FDIC and other affiliated banks.
Bank of America Private Bank is a division of Bank of America, N.A., Member FDIC and a wholly owned subsidiary of BofA Corp. Trust and fiduciary services are provided by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A.
Investment products:
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
© 2024 Bank of America Corporation. All rights reserved. 6519063 - 05/2024
[End of transcript]
[-] Close transcript  for Diversification video

Step 3. Ready, set, invest ...

Good to know
Dollar-cost averaging, or investing a set amount at regular intervals, can help lower the average cost per share of your trades.Footnote 2
Now that your personal formula, or desired asset allocation, is set, and you understand the value of being diversified, you're ready to build your core investment portfolio. Start by researching the universe of investing possibilities online, including mutual funds and exchange-traded funds, in addition to individual stocks and bonds. "Or you may prefer to work with an advisor who can help you identify potential investments that are complementary to your objectives," McGregor says. An investment approach called dollar-cost averaging — investing a set amount of money at regular intervals — can help you lower the average cost per share of your trades.Footnote 2
Get more details on your investing options in the video below.
Press enter to play 'Asset Classes' video
[Marci McGregor speaks throughout]
On screen disclosure: Please read important information at the end of this program. Recorded on 2/29/2024.
On screen copy: Asset Classes
Asset Classes: What are they? Don't worry, you don't have to go back to school for this.
[Animated speech bubbles appear containing the following financial terms]
On-screen copy:
Bond Ladder
Dividend Yield
P/E Ratio
Asset Allocation
Alternative Investments
Diversification
Total Return
Yield Curve
Market Breadth
Soft Landing
Net Asset Value
Huh?!
What?!
Translation, Please!™
P/E Ratio
[Screen focuses on the words "Asset Classes"]
On screen copy:
Asset Classes
Marci McGregor
Head of Portfolio Strategy, Chief Investment Office
Merrill and Bank of America Private Bank
Asset classes are groups of investments that share certain behaviors and characteristics. For most investors, there are three main types to know about:
[As Marci speaks, each term and its definition appears on screen]
  • Stocks, also known as equities.
  • Bonds, also known as fixed income.
  • And cash, which can include money market funds and CDs.
On screen copy:
Stocks - Equities
Bonds - Fixed income
Cash - Money market funds & CDs
They all have their own unique risks and potential benefits, and holding some combination of all three is important in a well-rounded portfolio.
On screen copy:
Some combination of all 3 is important
Think of it like a pie cut into three slices.
[A pie chart with three equal segments is shown. The segments are labelled "Stocks", "Bonds" and "Cash". As Marci describes each term, the pie chart rotates and the term being described is emphasized in red at the top of the screen]
Stocks give you a piece of ownership, or shares in a company, and their value can go up or down based on a company's performance, along with other factors. In general, stocks tend to be riskier than bonds or cash in the short-term, but can offer greater growth potential in the long term.
On screen copy:
Stocks
Riskier in the short term...
But offer greater growth potential in the long term
Bonds give you a piece of ownership in a loan, which can be issued by a government or corporation. As a "bondholder" you typically receive regular interest payments in return. Bonds are also generally less risky than stocks and can offer some stability when the stock market is volatile.
On screen copy:
Bonds
Generally less risky than stocks...
And can offer stability
Holding some cash in your portfolio is important for unexpected expenses and can offer stability of principal. But cash doesn't offer much growth over time, especially when prices are rising. So, it would typically make up the smallest slice of the pie.
On screen copy:
Cash
Important for unexpected expenses...
But doesn't offer much growth over time
[The pie chart segment labelled "Cash" shrinks, while the "Stocks" and "Bonds" segments grow larger to compensate]
There are other types of asset classes, such as Real estate and Commodities, like gold, and also Alternative investments for qualified investors.
[The terms "Real Estate", "Commodities, like gold" and "Alternative investments" appear in a list, next to diagrams of houses, gold blocks, and a pie chart respectively]
On screen copy:
Have their own risks...
& potential benefits
As with stocks, bonds and cash, they also have their own risks and potential benefits to consider before investing.
And that's your quick tutorial on asset classes.
On screen copy:
Asset Classes
Thanks for watching and stay tuned for more "Translation, Please" videos.
On screen disclosures:
Important Disclosures
The opinions expressed are as of 2/29/2024 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Alternative investments are intended for qualified investors only. Some or all alternative investment programs may not be in the best interest of certain investors. No assurance can be given that any alternative investment's investment objectives will be achieved.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. Bonds are subject to interest rate, inflation and credit risks. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.
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[End of transcript]
[-] Close transcript  for Asset Classes video

Step 4. Round out your portfolio

With your core portfolio shaping up, you might want to explore additional investments that align with your values or help you achieve certain goals. "You could, for instance, think about investing in renewable energy to help fight climate change and potentially benefit from the transition away from fossil fuels," McGregor says.

Step 5. Manage tax efficiency and transaction costs

Good to know
Sticking to a long-term strategy, rather than trying to 'time' markets by rapidly buying and selling, can help keep transaction costs down.
Considering tax implications and transaction costs could help you keep more of your returns, McGregor suggests. Weigh the benefits of traditional IRAs and 401(k)s (where you invest pretax dollars and defer taxes until you take distributions in retirement) vs. Roth IRAs and Roth 401(k)s (where you invest after-tax dollars but pay no taxes when you withdraw money in retirement). For investments you hold in taxable accounts, you might consider municipal bonds offering Federal (and, in some cases, state) tax-free income — especially if you are in a higher tax bracket. Also worth considering: exchange traded funds, or ETFs, tend to be more tax-efficient than mutual funds. Meanwhile, "sticking to a long-term strategy rather than trying to 'time' markets by rapidly buying and selling can help keep transaction costs down while reducing risk," she adds.

Step 6. Review your portfolio regularly

No portfolio is a "set it and forget it" proposition. As your life and financial markets evolve, your well-conceived asset allocation model can drift off course. "At least once a year, review your goals, cash needs, time horizon, risk tolerance and portfolio performance," McGregor says. In order to stay aligned with your preferred asset allocation, you may need to periodically rebalance your portfolio by selling some assets that have grown in value and buying others that have lagged. And if your priorities and goals change, you may need to adjust your asset allocation.

Step 7. Look for buying opportunities — and stay invested!

Good to know
Stay with it. Time in market is one of your best assets.
Once you've developed the investing habit, stay with it. "Volatility is a normal part of investing," McGregor says. Investors without clear strategies might be tempted to sell during a market decline and miss out on substantial gains when markets rebound.Footnote 4 Instead of selling, you might use those periods of weakness as an attractive buying opportunity, to add strategically to your portfolio. Says McGregor, "Time itself is one of your best assets."
For more information on building your portfolio, read the Chief Investment Office report, "Steer the course of your financial future: A guide for long-term investors (PDF)."

Next steps

Footnote 1 See Roger Ibbotson, "The Importance of Asset Allocation," Financial Analysts Journal, March/April 2010.

Footnote 2 A periodic investment plan such as dollar-cost averaging does not ensure a profit or protect against a loss in declining markets. Such a plan involves continuous investment in securities regardless of fluctuating price levels; investors should carefully consider their financial ability to continue their purchases through periods of fluctuating price levels.

Footnote 3 Active management seeks to outperform benchmarks through active investment decisions such as asset allocation and investment selection.

Footnote 4 BofA Global Research. S&P 500. Data as of February 6, 2024.

Important Disclosures

Opinions are as of DATE TK and are subject to change.

Investing involves risk including possible loss of principal. Past performance is no guarantee of future results.

BofA Global Research is research produced by BofA Securities, Inc. ("BofAS") and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC popup, and wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.

Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
All recommendations must be considered in the context of an individual investor's goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors.

Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.

Diversification does not ensure a profit or protect against loss in declining markets.

Sustainable and Impact Investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.
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