How to choose
What to weigh before you pick
It usually comes down to 3 things. Compare your options on each before deciding.
Account fees and fund expense ratios that compound over time.
Account types, available investments, and tools.
App quality, research, and human support when needed.
Bottom line: Stocks are ownership stakes in companies that grow with the economy over time but fluctuate significantly in the short term. Bonds are loans to governments or companies that pay predictable interest but grow slowly. Most long-term investors need more stocks when young and more bonds as they approach retirement; the classic shift is gradual, not binary.
Nearly every investment portfolio is built from some combination of stocks and bonds. Understanding what each is and how they behave, especially in relation to each other, is the foundation of investing literacy. Try the asset allocation calculator below to see a suggested stock/bond mix based on your own age and risk tolerance.
Explore a transparent age-and-risk allocation rule as an educational starting point, not a personalized portfolio recommendation.
Stock Dollars
$60,000
Use this result as one input in your broader Money Map, not as a one-off number.
What to do
Use this result to narrow your next financial move.
Pre-tax estimates. For illustration only — not financial advice.
What Stocks Are
When you buy a share of stock, you are buying a small ownership interest in a company. If the company's profits grow, the value of your shares tends to grow. If the company pays dividends (cash distributions from profits), you receive those too.
Return potential: Historically, U.S. stocks have returned approximately 7–10% per year on average before inflation, though with significant variation year-to-year. The SEC's investor education site covers how these markets work and the risks involved.
Risk: Individual companies can fail entirely. Even a diversified portfolio of stocks (like an S&P 500 index fund) can fall 30–50% in a severe recession. In 2008–2009, U.S. stocks lost about 50% from peak to trough. They recovered and reached new highs within a few years, but the interim was deeply uncomfortable.
Who they are right for: Investors with a long time horizon (10+ years) who can stay invested through downturns without needing the money. The long-run case for stocks rests on the economy growing and companies producing profits over time.
What Bonds Are
When you buy a bond, you are lending money to the issuer (a government or corporation). The issuer promises to pay you interest at a fixed rate (the "coupon") for a defined period, then return your principal at the end (the "maturity date").
Return potential: Bond returns are lower than stocks, typically 2–5% for U.S. government and investment-grade corporate bonds over long periods. The return is mostly predictable from the yield at purchase. TreasuryDirect.gov publishes current Treasury yields if you want to see today's starting point for government bonds.
Risk: Bonds carry several risks:
- Credit risk: The issuer may default and fail to repay. U.S. Treasuries have essentially zero default risk; corporate high-yield bonds have meaningful credit risk.
- Interest rate risk: When interest rates rise, existing bond prices fall (because new bonds offer higher yields). Longer-duration bonds are more sensitive to rate changes.
Who they are right for: Investors who need stability, predictable income, or are close to needing their money. Bonds reduce the volatility of a portfolio and provide a buffer during stock market downturns.
- Stocks and bonds often (but not always) move in opposite directions during market stress: when stocks fall sharply, investors sometimes flee to bonds, driving bond prices up. This negative correlation is the reason most portfolios benefit from holding both.
- The classic age-based rule of thumb is '110 minus your age in stocks,' so a 30-year-old holds 80% stocks and a 60-year-old holds 50%. More aggressive versions use '120 minus age.' These are starting points, not prescriptions.
- In 2022, both stocks AND bonds fell simultaneously as the correlation broke down during a high-inflation environment. This is a reminder that no rule holds in all conditions, and diversification is not the same as protection.
How Stocks and Bonds Work Together
The primary benefit of combining stocks and bonds is reduced portfolio volatility without proportional reduction in long-term return. A portfolio that falls 25% in a downturn is easier to stay invested in than one that falls 50%.
Example portfolio behaviors:
- Historical average return
- ~9–10%
- Approximate worst single year
- −38% (2008)
- Historical average return
- ~8–9%
- Approximate worst single year
- −29%
- Historical average return
- ~7–8%
- Approximate worst single year
- −19%
- Historical average return
- ~6–7%
- Approximate worst single year
- −12%
The trade-off: lower volatility costs some long-term return. For a retirement 30 years away, a heavy stock allocation is generally appropriate. For money needed in 5 years, a balanced or bond-heavy allocation protects against the risk of a market downturn at exactly the wrong time.
Getting the Allocation Right for You
Questions to consider:
- Time horizon: When will you need the money? Longer = more stocks.
- Risk tolerance: How would you react to a 40% portfolio decline? If you would sell in a panic, a lower stock allocation may serve you better even if it costs some return.
- Income stability: Stable employment with reliable income can support higher stock exposure because you are less likely to need to sell.
- Other assets: Social Security, pensions, and real estate function like bonds, providing stable income streams. If you have them, your portfolio can hold more stocks.
Historical returns are not guarantees of future performance. Asset allocation should reflect your personal financial situation and risk tolerance.
Frequently Asked Questions
Should I own only stocks or only bonds?
What percentage of my portfolio should be in bonds?
Do stocks and bonds always move in opposite directions?
How much can stocks or bonds lose in a bad year?
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