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Market Decode: How Bonds Work — and What They Can Do for You

Watch this video to get the basics on this key ingredient in a well-diversified portfolio


GENERALLY CONSIDERED THE MORE BORING, conservative part of an investor’s portfolio, bonds typically don’t get as much press as stocks do. And because they function differently from stocks and come in so many different flavors—Treasurys, municipals, corporate, high yield, etc.—they can be confusing. In the video above, Matthew Diczok, fixed income strategist for the Chief Investment Office for Merrill and Bank of America Private Bank, offers a clear, simple explanation of how bonds work and why they should be considered an important part of an investor’s strategy.

A well-diversified portfolio should include a mix of stocks, bonds and cash. 


A well-diversified portfolio should include a mix of stocks, bonds and cash (the three major asset classes). How much of each you hold depends on your financial goals, risk tolerance, time horizon and liquidity, or cash, needs. When it comes to bonds (also referred to as fixed income), there’s a general rule of thumb: The more conservative you are as an investor, the more bonds you may want to own, relative to stocks (also known as equities). If you’re willing to accept a greater amount of risk—and have a longer time horizon to reach your investment goals—you may be more comfortable with stocks than with bonds.


Watch our video and then check out our slideshow below to find an appropriate asset allocation based on the type of investor you are. And be sure to speak with your financial advisor about any adjustments you might want to make to your long-term financial strategy.

Important Disclosures


Opinions are as of the date of this article 06/25/2021 and are subject to change.

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


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.


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.


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.").


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