A: It’s helpful to remember that mild and even sharper pullbacks are a normal part of investing,” Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, advises. “Pullbacks of 5% happen on average three times a year, and markets have historically rebounded quickly.”¹ Declines of 10% to 20% happen every two and a half years, and severe declines of 20% to 40%, usually associated with recessions, occur every 8.6 years, he adds. “But even those have recovered within about 14 months on average.”²

While it’s tempting to seek the perceived safety of cash, selling your assets could mean that you’ll lose the potential for those assets to recover when markets rebound. If you’re thinking about pulling out of the markets, it may help to keep this in mind, Hyzy says: A hypothetical investment in the S&P 500, left alone from 1931 until today, would have produced a return of nearly 20,000%. But by missing the 10 best days of each decade, your return would have only been 38%.³

Instead of liquidating your assets, stay focused on your goals, Hyzy suggests. With them in mind, review your portfolio to make sure you’re sufficiently diversified, and consider making tactical adjustments as needed. For instance, you may want to rebalance your portfolio to maintain your ideal asset allocation. “Asset allocation and diversification can help to reduce your level of risk and mute the impact of any market pull backs,” Hyzy notes.

As you rebalance your assets or put new cash to work, a process called dollar-cost averaging  — or investing small amounts on a consistent basis over time  —  could help you avoid investing too much when the market is high and too little when the market is low. Especially in a declining market, that can help preserve value.

For more tips and insights, read “Fine-Tune Your Investments for Rising Inflation — and Slower Growth.”

A: Though geopolitical tensions are elevated and U.S. stocks have outperformed the world in recent years, don’t overlook the diversification and potential growth benefits of international stocks. “They may provide stronger dividends than their U.S. counterparts,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, and 81% of global growth, 39% of global market capitalization and 70% of consumer spending take place beyond U.S. shores.⁴ Also worth considering: Many emerging economies provide the raw materials that may be critical to rebuilding global infrastructure and supply chains.

Finally, history shows that it may be especially important to have international exposure during inflationary times, Hyzy adds. “Going back to 1973, when inflation has risen above 2%, international developed markets have produced average equity returns of 10.5%, while emerging markets have returned 13%.”⁵

A: Just as it may not be the best move to sell equities in a down market, investors should resist abandoning bonds for fear that rising interest rates will diminish their value. “Bonds can provide predictable cash flow and diversification, which over time can help to shield your portfolio from unexpected events,” says Joseph Curtin, head of CIO Portfolio Management in the Chief Investment Office for Merrill and Bank of America Private Bank.  “While your bonds’ market value may temporarily go down, your principal payment at maturity doesn’t.”

A better approach to consider, suggests Curtin, is this: Review your bond holdings, and plan to use the next maturity date as a reinvestment opportunity.  “Today’s rising rate environment provides us with the opportunity to buy new bonds with higher interest rates, which should generate higher cash flows in the future,” he explains.  High-quality bonds also potentially offer a diversification benefit that cash cannot.

For more tips and insights, read “Understanding and Managing Fixed Income in a Rising Rate Environment.”

A: While bonds generally have performed well when stocks have struggled, and vice versa, 2022 has witnessed “some of the most unique circumstances we have encountered in decades,” says Marci McGregor, senior investment strategist for the Chief Investment Office, Merrill and Bank of America Private Bank. The economy is currently at an inflection point, moving away from near-zero interest rates and monetary easing into a period of higher rates and tighter money. “The market is starting to transition to a period more attractive to fixed income investors, when bonds can serve their traditional role as a stabilizer and income producer,” says McGregor. “As the cycle matures, the historical relationships between equities and bonds will likely return, and diversification will potentially benefit portfolios.”

For more insights, watch “Market Decode: How Bonds Work — and What they Can Do for You.”

A: With frequent market pullbacks and rallies expected over the next couple of years, “a balanced portfolio is a good way to smooth out periodic volatility,” says Joseph Curtin, head of Portfolio Management in the Chief Investment Office for Merrill and Bank of America Private Bank. That means staying diversified within and across stocks and bonds.  Adding an allocation to commodity funds can help further position your portfolio for rising interest rates and inflation.

Curtin adds, “Rebalancing can help you maintain a risk tolerance that’s right for you, lock in profits you’ve earned and, potentially, buy new assets at attractive prices.” It also provides you with the opportunity to take a more disciplined approach to tax-loss harvesting.

For more strategies to help you stay invested through volatile periods, read the CIO’s “Staying the Course: A Disciplined Financial Strategy Roadmap.”