How to invest when both the stock market and bonds are down

A balanced portfolio of both equity and fixed income holdings has been a classic strategy for investors throughout the history of the market. Equities generally outperform bonds in the long run, but the stock market can fluctuate. Bond holdings have traditionally been used to smooth the ride quality of portfolios when the stock market looks like a jet coaster, as bonds usually move in the opposite direction of stocks. But so far, in 2022, there has been a dramatic departure from this relationship. Rising interest rates, inflation, and slowing economic growth combined to cause both stock and bond prices to plummet at the same time.

Breaking away from this norm has frustrated investors around the world and many are wondering where to go from here. Many may depend on your time range and life situation, but there are some behavioral policies that you can consider.

breathe. Although drastic, there is plenty of evidence that time will bring this complementary relationship back to a more normal state.

Rebalance. Both asset classes have declined, but at this point bonds retain their value more than stocks. By returning to the mix you intended to hold during the period of volatility, you will benefit from buying stocks with a dip, as you will get greater profits than holding the same bond.

Shorten the period. The opposite is true, and rising interest rates from near-historical lows were the main cause of bond declines. As interest rates continue to rise, the performance of long-maturity bonds continues to decline. Lowering the average term or term of bond holdings can, in principle, reduce future fluctuations in this part of the portfolio. Make sure you are accustomed to the trade-offs, as bond yields can be lower if the term is short.

Consider further diversification. Most investors see equities, bonds and cash as the pillars of the three major asset classes, while “real assets” are considered the fourth. This category focuses on assets that are underutilized due to 10 years of relative performance degradation and may be physically touched. Agriculture, real estate, energy, and base metals and precious metals fall into this category. Historically, physical assets work well in an inflationary environment, especially when compared to bonds. If inflation remains rising for some time, this can add another layer of stability to a balanced portfolio. However, investing in real assets can be complex and there are significant differences in some subcategories. It is wise for many investors to be well educated or to use specific expertise in various risks and dynamics when considering adding to their portfolio.

All of this is not as easy as it sounds, especially during the volatile economic conditions we are currently experiencing. Before making any changes, it’s a good idea to compare all the options and create a long-term game plan. Whichever path you choose, you need to be confident about why you chose it in the first place to maintain discipline in the future.

Trevor Conlon has over 20 years of experience as a financial adviser. His main focus is on managing personal assets and portfolios, generating income, retirement planning, and 401 (k) plan advisor services for businesses. He is a graduate of La Salle University in Philadelphia. Please contact

How to invest when both the stock market and bonds are down

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