Right now, I’m all in on stocks (besides my emergency fund and some extra cash), but I always see people talking about bonds as a way to balance risk.
For younger investors, is there actually a good reason to hold bonds when you’ve got a 20-30 year time horizon? I get that past returns don’t guarantee anything, but for those who do hold bonds—what’s your reasoning? Do you just see it as diversification, and are you okay with lower returns?
Peyton said:
It really depends on your risk tolerance, but most people here usually say young investors should be 90-100% in stocks, maybe 10% bonds max.
True, but let’s be real—this forum has everything from legit professionals to 16-year-olds pretending they trade for a living.
70/30 or 60/40 isn’t random. It’s designed to balance risk and returns. If you’re young and have the stomach for it, 90/10 or 100% stocks is fine, but just be ready for serious pain when the market tanks.
I’d go for long-term bonds instead of those weak BND and BNDX funds that show up in target-date portfolios.
Long bonds are way more sensitive to rate changes, which can be useful. In a recession, stocks drop but long bonds tend to shoot up, especially if the Fed starts pumping money again. Rebalancing between stocks and long bonds has historically performed better than mixing stocks with total bond funds.
70/30 is the way to go for some people. Stocks let you eat well, bonds let you sleep well. Diversification is a simple concept, but ignoring it can be risky.
The idea behind bonds is simple: stocks do well when rates are low, bonds do well when rates are high. But the last cycle kind of broke that pattern, so who knows?
Diversification reduces risk, and bonds are just another way to spread things out. But if you want liquidity for buying dips, even a savings account can do the job.
Let’s not overthink this—there’s no real reason to hold 30% bonds for a 20-30 year time frame. 10% is fine, 0% is totally okay too if you can handle the volatility.