Asset Allocation: Deciding the Stock and Bond Split
The split between stocks and bonds explains most of your portfolio's behaviour. Fund selection explains much less.
At a glance
Figures checked 1 Sep 2026
What to take away
- Time horizon comes first: money needed within five years should not be in stocks.
- Write down the decline you could tolerate without selling, then allocate to that.
- A plan you abandon in a downturn is worse than a more conservative one you keep.
Asset allocation is the proportion of your portfolio in stocks, bonds and cash. It determines both your expected return and the size of the declines you will sit through.
Sizing the decline you can live with
| Allocation | Indicative worst-case decline |
|---|---|
| 100% stocks | Around 50% |
| 80/20 | Around 40% |
| 60/40 | Around 30% |
| 40/60 | Around 20% |
Look at the balance you expect to have in ten years and apply those percentages to it in dollars. The dollar figure is the honest test, not the percentage.
Everyone is aggressive in a rising market. The allocation to choose is the one you would still hold after the number on the statement has fallen by a third.
Common questions
It is a crude starting point that ignores pensions, job stability and other resources. Use it as an anchor, not an answer.