Investing Foundations
Asset Allocation Explained: How Much Should You Hold in Stocks vs Bonds
The classic starting point is “100 minus your age” in equities, with the rest in bonds, but that rule is a blunt instrument from a different era. A better answer: your stock-bond split should be driven by your capacity to take risk (time horizon, job security, other income) far more than your age alone. For most UK investors with a 15-year-plus horizon, a global equity weighting somewhere between 60% and 100%, with bonds added as you near the point of spending the money, is a defensible range. Below is how to land on your own number, and the UK-specific tax and product details most articles skip.
What asset allocation actually decides
Your split between equities (shares) and bonds is the single biggest lever on how your portfolio behaves. Equities are part-ownership of companies: higher expected returns, larger swings. Bonds are loans to governments or companies that pay a fixed coupon and repay a set amount at maturity: lower expected returns, usually steadier, and a source of income.
A 60/40 portfolio (60% equities, 40% bonds) has historically delivered a meaningful slice of equity-style returns while cutting volatility compared with holding shares alone. That trade is the whole point: you give up some upside to make the ride survivable, which matters most for people who will need the money within a decade or who would panic-sell in a crash.
If you are still working out the mechanics of buying either, start with how to start investing in the UK and how to buy your first index fund, then come back to set the split.
The age rules, and why not to follow them blindly
The “100 minus your age” rule means a 40-year-old holds 60% equities and 40% bonds. Because people live longer and need decades of growth, modern variants use 110 or 120 minus your age, which puts the same 40-year-old at 70% to 80% equities. Jack Bogle, the founder of Vanguard, offered a rough guide of holding bonds roughly equal to your age, but he was explicit that no one should apply it mechanically: he counted a state or defined-benefit pension as a bond-like asset, which pushed his own working equity weight much higher than the formula alone implied.
| Rule of thumb | Equities at 30 | Equities at 50 | Equities at 65 |
|---|---|---|---|
| 100 minus age | 70% | 50% | 35% |
| 110 minus age | 80% | 60% | 45% |
| 120 minus age | 90% | 70% | 55% |
| Bonds = your age | 70% | 50% | 35% |
The flaw in all of them is that age is only one input. A 50-year-old with a secure public-sector job, a defined-benefit pension and a paid-off house has far more capacity for equity risk than a 35-year-old freelancer with no safety net. Risk capacity (how much loss your circumstances can absorb) should usually outrank both your age and your gut “risk tolerance”.
Do you even need bonds in accumulation?
This is the question that dominates UK forums, and the honest answer is that it depends on behaviour, not just maths. If your horizon is 20-plus years and you are certain you will keep buying through a 50% crash without flinching, an all-equity portfolio has historically grown more. The catch is that very few people actually behave that way. Bonds earn their place by reducing the depth of drawdowns, which keeps you invested.
There is also a timing point. Through the 2010s, gilt yields sat near zero, so bonds offered little income and looked pointless to many. That has changed. As of early June 2026 the UK 10-year gilt yield was roughly 4.35%, above a Bank of England Bank Rate of 4.00%, so bonds again pay an income worth holding. The case for bonds is stronger now than it was for most of the last decade.
Why bonds fell with stocks in 2022 (the 60/40 stress test)
The standard pitch for bonds is that they zig when shares zag. For over a decade after the 2008 crisis, stock-bond correlation was reliably negative, and that held. Then 2022 broke it. Equities and bonds fell together, and the 60/40 lost more than 16% on a US basis, its worst calendar year since 2008. The CFA Institute Research Foundation studied stock-bond performance back to 1901 and found that the negative correlation people assume is anything but constant, while Morningstar’s 150-year stress test found the 2020s were the only crash in that span where the 60/40 fell harder than an all-equity portfolio, and that it did not reclaim its previous high until June 2025, more than two and a half years later.
The cause matters. Correlation turned positive in 2022 because the shock was inflation and monetary-policy uncertainty, not a growth scare. When central banks raise rates to fight inflation, both shares and bonds reprice downward at once. As inflation receded and rate cuts began, the relationship eased, but the lesson stands: bonds diversify growth shocks well and inflation shocks poorly. The IMF has noted that since the pandemic this pairing offers less protection in sharp selloffs than the textbook implies.
So the 60/40 is not dead, but selling it as a free lunch was always wrong.
“Bonds = safe” is too crude: duration is the risk
The 2022 fall was not a default crisis. It was duration. A bond’s price moves opposite to interest rates, and the longer its remaining life (its duration), the more it swings. Long-dated gilt funds dropped hard in 2022 because rates rose fast. A short-dated bond, or an individual gilt held to maturity, behaves very differently: you can buy a gilt with a £100 par value, hold it, collect the coupons and receive £100 back on a known date, with a return (the yield to maturity) fixed at purchase regardless of price wobbles in between.
The practical takeaway: a bond fund gives you diversification but no fixed maturity, so its price floats with rates. Individual gilts held to maturity give certainty but require more work. Neither is “safe” in the abstract; they carry different risks.
Gilts, corporate bonds and the UK tax angle most pages ignore
This is where UK investors should stop reading US articles about Treasuries and 401(k)s. UK gilts (UK government bonds) are exempt from capital gains tax under section 115 of the Taxation of Chargeable Gains Act 1992. Qualifying corporate bonds (QCBs) are also CGT-exempt. The HMRC exempt-securities list was last updated on 20 May 2025 with 14 new entries. Note the limit: the coupon income is still taxable as income if held outside an ISA or SIPP.
| Feature | UK gilts | Corporate bonds (QCBs) |
|---|---|---|
| Issuer | UK government | Companies |
| Default risk | Very low | Higher, varies by issuer |
| CGT on gains | Exempt (s115 TCGA 1992) | Exempt if a QCB |
| Coupon income | Taxable outside a wrapper | Taxable outside a wrapper |
| Typical yield | Lower | Higher (to compensate for risk) |
The wrapper choice follows from this. Hold bond funds inside an ISA or SIPP and all income and gains are sheltered. For individual gilts, the CGT exemption means a lower-coupon gilt held directly outside a wrapper can be tax-efficient, because most of your return arrives as a tax-free capital gain rather than taxable income. That is a genuinely UK-specific lever worth understanding before you decide where each holding sits.
Off-the-shelf vs build-your-own
The simplest route is a single multi-asset fund. The Vanguard LifeStrategy 60% Equity Fund holds roughly 60% global shares and 40% global bonds at an ongoing charge of 0.20%, and an 80% Equity version holds about 80/20 at the same cost. One important catch: these allocations are static. They rebalance back to the same fixed split forever and do not de-risk as you age. That quietly contradicts the age-based advice many articles print alongside them. If you want a fixed 80/20 for 30 years, LifeStrategy 80 does exactly that; if you want to glide toward bonds over time, you must either switch funds or build it yourself.
Your workplace pension usually does the gliding for you. Most UK DC default funds use “lifestyling”: a glide path that automatically shifts from equities toward bonds and cash as you approach a target retirement date. The criticism is that the only inputs are age and target date, so a cautious low earner and a wealthy high earner of the same age get an identical allocation, ignoring their very different risk capacity. It is worth checking whether your default is de-risking you earlier or harder than your circumstances justify.
Rebalancing: the discipline that makes it work
An allocation only does its job if you maintain it. When shares surge, your 70/30 drifts to 80/20 and quietly becomes riskier; when they crash, it drifts the other way. Rebalancing means selling a little of what grew and buying what lagged, which mechanically forces “sell high, buy low”. Once or twice a year, or when a holding drifts more than about five percentage points from target, is plenty.
Do it inside an ISA or SIPP and the trades are CGT-free, which is a strong reason to hold your rebalanced portfolio in a wrapper. If you are deciding how to feed new money in, lump sum vs pound-cost averaging covers the trade-offs, and if you are weighing funds against picking your own bonds and shares, active vs passive investing is the related decision.
Frequently asked questions
What percentage of my portfolio should be in stocks vs bonds? There is no single right number; it depends on your time horizon and risk capacity. As a rough range, long-horizon investors (15-plus years) often sit between 80/20 and 100% equities, a 60/40 split suits those who want a steadier ride or are within a decade of spending the money, and you add bonds as that spending point approaches. Use the age rules as a starting reference, then adjust for job security, other income and how you actually behaved in past falls.
Does the “100 minus your age” rule still work? As a conversation-starter, yes; as a prescription, no. Longer lifespans pushed many advisers to 110 or 120 minus your age, lifting equity weights. Even Jack Bogle, whose own guide was bonds roughly equal to your age, warned against applying any formula mechanically and counted a guaranteed pension as a bond-like holding. Treat it as a default to argue with, not a rule to obey.
Why did bonds fall at the same time as stocks in 2022? Because the shock was inflation, not slowing growth. To fight inflation, central banks raised rates sharply, and rising rates push down both share prices and bond prices at once. Stock-bond correlation, negative for over a decade, turned positive, so the usual diversification failed. Bonds protect against growth scares far better than inflation scares.
Is the 60/40 portfolio dead? No, but it was oversold. It still cuts volatility meaningfully over time, and with gilt yields around 4.35% the bond side finally pays a real income again. 2022 showed it is not a free lunch and can have deep, slow drawdowns; the 60/40 took until June 2025 to recover its previous high. Hold it understanding the risk, not as a guarantee.
Are UK gilts free from capital gains tax? Yes. Gilts are exempt from CGT under section 115 of the Taxation of Chargeable Gains Act 1992, as are qualifying corporate bonds. The coupon income remains taxable as income if you hold them outside an ISA or SIPP, so for low-coupon gilts held directly, most of the return can arrive as a tax-free gain.
Should I buy individual gilts or a bond fund? A bond fund is simpler and stays diversified, but it has no maturity date, so its price floats with interest rates (which is what hurt in 2022). An individual gilt held to maturity gives a known return: you buy it, collect the coupons and get the £100 par value back on a set date. Funds suit hands-off investors; individual gilts suit those who want a certain outcome for a specific future date and will do the admin.
Is my pension default fund moving me into bonds too early? It might be. Lifestyling glide paths de-risk purely on age and target date, ignoring your wider finances. If you have a secure income, other assets or a later real retirement date, an automatic shift into bonds in your fifties can cut your growth more than your circumstances require. Check your default fund’s glide path and whether a higher-equity option fits your actual risk capacity.
