OCEAN CITY – There is no simple solution for growing wealth. Your financial goals, timeline, and risk profile will determine how you should allocate your assets among the major investment classes of stocks, bonds, and cash equivalents.
For example, young parents who are starting a college education fund for their newborn have a long time horizon and typically can, in the earlier years, tolerate the fluctuations of an aggressive growth strategy that invests primarily in stocks. In contrast, retirees who want current income from their portfolios typically allocate a significant amount to low volatility bonds while still owning stocks to help provide adequate portfolio growth to maintain their purchasing power.
Your Financial Advisor (FA) can help you determine a suitable allocation among the major asset classes: stocks, bonds, and cash. After assisting you with that decision, your FA can also provide guidance on the subsequent sector allocation within each asset class. For instance, if the stock portion of your portfolio can be further diversified by dividing those funds among domestic large-, mid-, and small cap stocks; international stocks; and so on. The same diversification strategy holds for fixed income investments, which vary by issuer (corporate, government, municipal) and maturity.
Investment returns and opportunities vary over time, making it necessary to review and rebalance your portfolio periodically. Because income taxes can reduce your investment returns significantly, your FA can work with you to identify tax efficient changes to your portfolio. These opportunities may include the use of tax-advantaged retirement vehicles, such as pension plans and IRAs.
Growing your wealth requires a suitable asset allocation and the investment vehicles to implement your investment plan. It also requires flexibility to adapt to changing circumstances. Your FA can help you develop a growth strategy designed to keep you on course for financial security.
Merrill Lynch nor its FA provide tax, accounting or legal advice. You should consult with your tax and/or legal advisors regarding your specific situation. Asset allocation does not assure a profit or protect against a loss in a declining market.
(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)