Asset allocation and the risk you can handle

Figuring out how much to hold in stocks and how much in bonds is the next step. There’s no one-size-fits-all answer.

No risk, no return, is an old investing adage. Stocks historically have returned more than bonds precisely because there is more risk in owning them.

Historical returns provide no guarantee for the future, but they may serve as a guide. Vanguard posts returns for nine stock-bond portfolios based on U.S. index funds, and they are informative. From 1926 to 2020, for example, the worst year for the S&P 500 stock index was 1931, when it lost 43.1 percent; the best was 1982, when it gained 54.2 percent. The worst year for the pure bond portfolio was 1969, when it fell 8.1 percent; the best was also 1982, with a gain of 45.5 percent.

Stock and bond mixtures fell somewhere between these extremes. My portfolio is about 60 percent stock and 40 percent bonds. Find an asset allocation that works for you.

If the current stock downturn is already ruining your sleep, you may hold too much stock. But try not to let the news get to you. You’re in this for the long haul. Don’t sell just when you’re worried and buy just when the market has risen. That’s not a plan. It’s a problem.

“Do something fun,” Professor Thaler said. Get away from the news. As a journalist, that doesn’t work for me. But as an investor, sure. I take brief vacations from the news. I’m going out for a run now.