Stocks vs Bonds
When building an investment portfolio, one of the most fundamental decisions is how much to invest in stocks versus bonds. These two asset classes behave very differently—and understanding when to prioritise one over the other can have a big impact on your long-term results.
What Are Stocks?
Stocks represent ownership in a company. When you buy a stock, you become a shareholder, entitled to a portion of the company’s profits (typically via dividends) and the potential growth in its value.
✅ Pros of Investing in Stocks
- Higher long-term return potential
- Dividends can provide income
- Ownership in real businesses
⚠️ Cons of Investing in Stocks
- Higher short-term volatility
- Vulnerable to market swings and economic downturns
What Are Bonds?
Bonds are essentially loans you make to governments or companies in exchange for regular interest payments and the return of your original investment at the end of the term.
✅ Pros of Investing in Bonds
- Lower volatility than stocks
- Regular, predictable income
- Generally safer during market downturns
⚠️ Cons of Investing in Bonds
- Lower long-term returns
- Sensitive to inflation and interest rate changes
- Credit risk (for corporate bonds)
When Should You Invest in Stocks?
When You:
Have a long time horizon (e.g. retirement is 10+ years away)
Can tolerate market ups and downs without panic-selling
Want to grow wealth over time
Are saving for goals with no fixed date (e.g. building general wealth or investing for children)
Over long periods, stocks have historically outperformed bonds. If you’re young and investing for retirement, a higher allocation to stocks makes sense—especially if you're willing to ride out market volatility.
When Should You Invest in Bonds?
When You:
Need predictable income (e.g. in retirement)
Have a shorter time horizon or need access to money soon
Want to reduce portfolio risk and volatility
Are investing during market uncertainty or high interest rate periods
Bonds can play an important stabilising role in a portfolio. They help cushion the blow when stock markets fall and offer a more reliable income stream.
A Balanced Approach
Most investors don’t go all-in on one or the other—they blend both based on their goals, risk tolerance, and life stage. A classic rule of thumb is the “age-in-bonds” rule, where you subtract your age from 100 to determine your stock allocation. For example, a 30-year-old might have 70% in stocks and 30% in bonds.
Of course, this is just a guideline. A more aggressive investor might hold more in stocks for longer, while a cautious one might prefer more bonds even at a younger age.
Summary
There’s no one-size-fits-all answer to the stocks vs. bonds debate. The right mix depends on your personal goals, timeline, and appetite for risk. Stocks offer growth, bonds offer stability—and together, they can create a well-rounded portfolio.
Tip: Revisit your asset mix regularly, especially as you approach major life milestones like buying a home or retiring.