There is no stock-bond-cash percentage that suits everyone. Build the mix around when you expect to need the money and how much fluctuation or loss you can tolerate, then diversify within each category and rebalance as the mix drifts. These are general educational principles, not personalized investment advice.
Start with the goal, not a formula
For each investment goal, identify when the money may be needed and how much of a temporary decline you could live with without abandoning the plan. The SEC says allocation depends largely on time horizon and ability to tolerate risk. A longer horizon may make it easier to ride out volatility; a shorter one may call for less exposure to risk. As a goal gets closer, the appropriate mix may change. The SEC’s asset-allocation guide explains these factors.
As an Amazon Associate I earn from qualifying purchases.
Age alone, or whichever asset class performed best recently, is not enough to determine a mix. People saving for different goals—or with different reactions to losses—may reasonably choose different allocations.
Free tools Windows power users keep installed
One-click scans. No signup required.
What stocks, bonds, and cash can contribute
| Category | Potential role | Risks and limits |
|---|---|---|
| Stocks | Growth potential over time. | Among these three categories, stocks generally have the greatest risk and potential returns, and their value can fluctuate substantially. |
| Bonds | Can provide income and are generally less volatile than stocks, with more modest returns. | Risk varies with the bond and issuer. High-yield, sometimes called junk, bonds can carry higher risk; bonds are not interchangeable with cash. |
| Cash and cash equivalents | Liquidity and generally low investment-loss risk. | They also tend to offer low returns. Over longer periods, inflation can erode purchasing power. |
These are broad descriptions, not guarantees. A diversified allocation can help manage risk, but it cannot eliminate investment risk or guarantee a return.
Diversify inside each category
Holding stocks, bonds, and cash does not by itself ensure diversification. A portfolio may still be concentrated—for example, if its stock holdings are all in one company or narrow market segment, or its bonds depend heavily on one issuer.
- For stocks, consider whether holdings are spread across companies and market segments rather than concentrated in a small number of positions.
- For bonds, consider issuer and bond-type exposure; a fund or portfolio made up of one riskier segment is not equivalent to a broad bond allocation.
- For cash, distinguish money intended for near-term needs from investments meant to serve a longer-term goal.
Mutual funds and exchange-traded funds can make it easier to own a range of investments, but the fund label alone does not make an investment diversified. A narrowly focused fund may still leave you concentrated. The SEC discusses this distinction in its guide to asset allocation and diversification.
Use example allocations carefully
In a 2021 municipal-bond bulletin, the SEC used an allocation of 50% stocks, 40% bonds, and 10% cash as an example. It is an illustration, not a universal or personalized recommendation. The right mix for a particular goal still depends on its time horizon and the investor’s ability and willingness to accept risk. Read the SEC municipal-bond bulletin.
Rebalance when the portfolio drifts
Market movements can change the percentages in a portfolio even if you do not buy or sell anything. Rebalancing brings the allocation closer to the plan; it does not ensure a profit or prevent losses.
Choose a review approach
You can review on a calendar schedule or when an allocation crosses a threshold you set in advance. Investor.gov notes that some experts use six- or twelve-month intervals and that rebalancing generally works best relatively infrequently. FINRA says there is no official timeline and suggests considering an annual review. These are approaches to consider, not mandatory schedules. See Investor.gov’s guide and FINRA’s asset-allocation guidance.
Ways to bring the mix back toward plan
- Sell part of holdings that have grown beyond their planned share and use the proceeds to buy underweight categories.
- Direct new contributions toward underweight categories instead of selling existing holdings.
- Combine both methods: use contributions first, then sell holdings if needed to restore the target mix.
Before selling in a taxable account, consider that a sale may have capital-gains tax consequences. Transaction costs may also apply. The effect depends on the account and individual circumstances.
Quick Recap
A practical decision checklist
- Write down the goal and when you expect to use the money.
- Decide how much fluctuation or loss you can tolerate without changing course.
- Choose a stock, bond, and cash mix that reflects those constraints rather than recent performance alone.
- Check whether holdings are diversified within each category, not merely spread across the three labels.
- Set a review schedule or drift threshold, and consider taxes and costs before selling to rebalance.
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
Quick wins for a faster PC:
Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Clear out junk files and repair common Windows errorsFree Scan →
