The stocks-vs-bonds allocation decision is the single most impactful investment choice you'll make — more so than which stocks or bonds you pick. It determines your portfolio's expected return and volatility across every market environment.
Historical returns: the baseline
| Asset | Annualized real return (1928–2026) | Worst single year |
|---|---|---|
| US Stocks (S&P 500) | ~7.0% | -43.8% (1931) |
| US Bonds (10-yr Treasury) | ~1.7% | -11.1% (2022) |
| 60/40 Portfolio | ~5.1% | -20.1% (2022) |
Why bonds in a portfolio (beyond "safe")
- Rebalancing fuel: When stocks drop 30%, bonds often hold or rise — you sell bonds to buy more stocks at low prices. This systematic rebalancing adds 0.5–1% to long-run returns.
- Sequence of returns risk protection: A bond allocation creates a "reservoir" to draw from in retirement during stock downturns without selling equities at depressed prices.
- Volatility reduction: A 100% stock portfolio can drop 50%+ in a crash. A 60/40 portfolio typically drops 20–25%. The psychological ability to stay invested matters as much as theoretical returns.
Age-based vs goal-based allocation
Age-based (rule of thumb): bonds % = your age. At 40: 40% bonds. This is too conservative for most healthy people with long retirements ahead. Goal-based is superior: match bond allocation to the time horizon of the money.
- Money needed in 1–3 years: bonds or cash
- Money needed in 3–7 years: 50–70% stocks
- Money needed in 7+ years: 80–90% stocks
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About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
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