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Asset Allocation: Stocks, Bonds, and Why the Mix Matters

Beginner Investing • 5 min

What this lesson is about

There's no universal 'correct' mix of stocks and bonds. It depends on time horizon and risk tolerance.

2 parts · a quick check after each · then the quiz

Part 1 of 2

There’s no one-size-fits-all mix of stocks and bonds. Your time horizon and risk tolerance matter a lot. Asset allocation is how you divide your portfolio among categories like stocks, bonds, and cash. Generally, stocks offer higher long-term returns but come with more ups and downs. Bonds tend to be steadier but usually yield lower returns over time.

A popular guideline is a '60/40' portfolio. That's 60% in stocks and 40% in bonds. This split can be a good starting point, but it's not a strict rule.

DiversificationChange the mix. Watch the swings shrink without the return going with them.

Quick check

What is 'asset allocation'?

Part 2 of 2

Insider Angle: Age-based rules of thumb, like 'hold your age in bonds,' are around for a reason. Your time horizon changes the game. A 25-year-old can ride out market dips, while someone retiring next year cannot. Same market, but very different risk levels.
Try This: If you were setting up a portfolio for someone retiring in 1 year versus someone just starting out, what allocation split would you think makes sense for each? Why?

Quick check

Historically, which asset class has generally offered higher long-term returns but with more volatility: stocks or bonds?

Quiz

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