The Tool Desk
Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →There is no stock-and-bond mix that fits everyone, and a market downturn alone is not a reason to change yours. Choose an allocation by weighing when you will need the money, what you are investing for, your financial ability and willingness to withstand losses, and any withdrawals or liquidity needs. Then check whether your underlying plan has changed before deciding whether to rebalance.
This guide covers U.S. investing. It is general education, not individualized investment, tax, or legal advice.
What stocks and bonds contribute to a portfolio
Stocks can provide greater long-term growth potential, but their prices can swing sharply. The SEC says large-company stocks as a group have lost money on average about one out of every three years; that is a broad historical observation, not a prediction about any particular year or downturn. Investor.gov’s asset allocation guide explains the trade-off.
Bonds are generally less volatile than stocks and tend to offer more modest returns, but they are not risk-free. Their risks differ by issuer and bond terms, and bonds do not always rise when stocks fall. Diversification can spread exposure across and within asset classes, but it cannot guarantee a profit or prevent losses.
Recommended Free Tools
#1 Best Overall
How to choose a mix that fits your circumstances
Compare stock-heavy and bond-heavy allocations against the same practical questions. A higher stock allocation can suit a longer growth horizon if you can live with larger short-term losses; a larger bond allocation may moderate some portfolio swings, but may also limit growth. Neither description establishes a universally appropriate percentage.
- Time horizon and withdrawal date: When will you need the money, and how long can it remain invested? A goal far in the future may have more time to withstand market declines than a planned near-term withdrawal.
- Risk capacity: Could your finances withstand a substantial loss without disrupting essential expenses or forcing you to sell at an inconvenient time?
- Risk tolerance: Could you remain invested through a sharp decline, or would the swings make you likely to abandon the plan?
- Goals and financial situation: Consider the purpose of the money, income, debts, other assets, and changes in your circumstances—not just the latest market move.
- Liquidity: Identify near-term spending needs and accessible emergency savings separately from money intended for long-term investment.
The SEC’s allocation guidance emphasizes time horizon and risk tolerance, while its investor alert also advises considering goals, financial circumstances, and emergency savings. Age alone does not determine an appropriate allocation.
Rank #2
- Comes with secure packaging
- Easy to read text
- It can be a gift option
Check bond risks rather than treating bonds as one category
A bond fund or individual bond can behave differently depending on what it owns and the terms of those securities. Before using bonds to shape portfolio risk, consider the characteristics relevant to the holding:
- Credit or default risk: The issuer may be unable to meet its obligations. Higher-yield bonds can involve higher risk.
- Interest-rate sensitivity: Bond prices can respond to changes in interest rates; sensitivity varies with a bond’s maturity and duration.
- Call terms: Some bonds can be repaid by the issuer before maturity, which can affect expected income and the time an investor can keep the bond.
- Liquidity: Some bonds may be harder to sell promptly at a desired price.
The SEC’s municipal-bond bulletin discusses credit/default, call, interest-rate, and liquidity risks specifically for municipal bonds. Those examples should not be assumed to describe every bond identically; examine the security or fund’s actual holdings and terms.
Decide whether the downturn changed your plan
Separate a change in your life from a change in market prices. A revised goal, shorter time horizon, new withdrawal need, or changed ability to bear losses may justify reviewing the plan. A fall in the market, on its own, does not establish that your target allocation is no longer suitable.
In a historical Investor.gov article, Lori Schock, then the SEC’s former Director of the Office of Investor Education and Assistance, wrote: “If you sell all of your stock assets when the market is down, you can lose a significant amount of money.” Selling after a decline can lock in losses, and an investor who leaves the market may miss a later recovery; when that recovery occurs cannot be predicted. Schock’s article on rebalancing discusses this risk.
Another Investor.gov article by Schock says, “Your first reaction during a time of market volatility may be to panic. Don’t. Instead, plan it!” The page is marked as no longer being updated, so this is historical behavioral guidance rather than a statement about current market conditions. Read the article.
Rebalance to a target, not to a market forecast
Rebalancing means bringing the portfolio back toward an allocation you have already chosen. It is different from changing that target because you expect one asset class to outperform. First confirm that the target still reflects your goals, horizon, withdrawals, and risk tolerance.
What’s actually slowing this PC down?
Pick the symptom - the matching free tool is one click away.
Investor.gov describes two common ways to decide when to rebalance: set a calendar interval, such as every six or twelve months, or set a percentage drift threshold that triggers a review. These are approaches, not universal rules; the SEC says rebalancing tends to work best relatively infrequently. Investor.gov’s guide explains both approaches.
Once a review indicates that rebalancing is appropriate, possible methods include:
- Sell some holdings in categories that have grown above their target and buy those below target.
- Direct new contributions toward underweight categories instead of selling holdings.
- Use a combination of sales and contributions, accounting for the account and holdings involved.
Before trading, check transaction costs and possible tax consequences. The effects depend on the account type and the securities involved; the SEC’s rebalancing discussion notes fees and tax implications as factors to consider.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Account for withdrawals and near-term cash needs
If you are close to taking money out, you may have less time to wait for a recovery than someone investing toward a distant goal. Map expected withdrawals and keep accessible emergency savings in view when assessing how much market risk your overall plan can bear. Money needed soon and money invested for a long-term goal do not necessarily belong on the same timetable. The SEC addresses volatility, emergency savings, goals, and rebalancing in its investor alert.
A practical decision sequence
- Write down the goal and date. Identify what the money is for, when it is likely to be needed, and whether withdrawals may begin earlier.
- Assess loss capacity and tolerance. Consider both the financial consequences of a decline and whether you could stick with the allocation during one.
- Review liquidity and other circumstances. Account for planned spending, emergency savings, income, debts, and changed obligations.
- Inspect the actual holdings. Look at diversification within stocks and bonds, plus bond credit quality, interest-rate sensitivity, maturity or duration, call terms, and liquidity where applicable.
- Compare the current mix with your target. If the target still fits, consider whether a calendar or drift-based review calls for rebalancing. If your circumstances changed, reassess the target rather than making a market-timing move.
- Check costs and taxes before acting. Compare the consequences of selling with directing new contributions to underweight categories.
If you need a recommendation tailored to your circumstances or an assessment of tax consequences, consult a qualified investment or tax professional.
Quick Recap
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
