What If Stocks and Bonds Move Down at the Same Time?

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What do your stocks, house, car, lawnmower, and expensive jewelry all have in common? If things get financially desperate enough, you’ll sell them all. At first thought, one might assume that there is no real correlation between a lawnmower and a car, but in times of serious stress, they all have to go—at the same time! If you think your real estate is worth $500,000, maybe you’ll take $495,000, but what if you have to sell it in a month no matter what? How about a week? How about a day?

The typically recommended portfolio of 60 percent of your assets in equities and 40 percent (60/40 portfolio) in bonds has worked well for a long time. The data supports the idea, bonds have been in a bull market since the early 1980s, and yields have been headed down in kind. Most of the time when stocks go down enough, bonds often go up, and because of this negative correlation, it has made sense to have both in your portfolio; bonds acting as a safe haven from stocks and vice versa.

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