How should I split my money between stocks and bonds?

There is no single right split, and anyone who gives you one number without asking about you is guessing. The mix of shares, bonds and cash is the biggest decision in a portfolio because it sets both how fast the money is expected to grow and how far it can fall. The right mix depends on three things: when you will need the money, whether you could carry a fall without changing your life, and how you would actually behave while it was happening.

What each one does

Shares have grown faster over long periods and fallen harder along the way. High-quality bonds and cash have grown more slowly and fallen less, which is why they are used for money needed soon. US history, which is long and well recorded, shows the shape (nominal, before costs and tax):

The years matter as much as the averages. In 2008 shares fell 36.6% while 10-year Treasuries rose 20.1% — the cushion did its job. In 2022 shares fell 18.0% and those bonds fell 17.8% in the same year, so a mixed portfolio had nowhere to hide. Bonds usually soften a fall in shares; they do not always.

Three questions that set your split

1. When do you need it? The SEC puts time horizon first: money you will spend within a few years has no time to recover from a fall, so it belongs in cash or short, high-quality bonds.
2. Could you carry a fall? A secure salary, a pension that pays an income, or a long way to go before you stop working all make a fall easier to carry. Vanguard’s life-cycle research treats future earnings as a bond-like asset, which is why a young saver can usually hold more in shares.
3. Would you hold on? Willingness is part of risk tolerance too. A mix you would abandon in a crash is worse than a slightly more cautious one you would keep.

Rules of thumb, and where they come from

You will meet rules such as holding your age in bonds, or a fixed 60% shares and 40% bonds. Treat them as starting points. The reasoning behind them is life-cycle theory: as your working years shrink, the bond-like income from your job shrinks too, so the portfolio moves gradually from shares to bonds — a downward “glide path”. Vanguard’s 2025 model shows how much the right path depends on you: more aversion to risk lowers the share of equities, a higher savings rate lets you reduce risk earlier, and stopping work later supports more equity for longer.

Diversify inside each part, then rebalance

The SEC’s guide asks for diversification at two levels: between asset classes, and within each one — many companies, sectors and countries in shares; several issuers and maturities in bonds. Over time the mix drifts as one part outgrows the other. Rebalancing puts it back, either on a calendar (the SEC mentions every six or twelve months) or when a weight drifts past a set band.

Common mistakes

• Choosing a mix in a calm market and discovering your real tolerance in a crash.
• Holding long-term money in cash indefinitely “until things settle”.
• Keeping the same aggressive mix right up to the year you start drawing on it.
• Forgetting money held elsewhere — a pension, a provident fund or a deposit — when you count your split.

What would change the answer

A secure income such as a state pension or an annuity covering your essentials lets the rest of the portfolio take more risk. A shorter horizon, an unstable income or a large planned expense soon pushes the other way.

Seeing it in Nivritee

Your plan carries two return assumptions — Investment return while you are working and Investment return after you stop earning — and the second is usually lower because most people hold more bonds once they stop earning (which rate to assume). On the Freedom Ladder, the Sufficiency card’s Held in growth assets control runs from All debt to All equity and says what that mix is expected to return and how widely it may spread.