What to sell when your financial needs change, stocks or bonds?
The answer may be a compromise... if your goal is to make bonds a larger part of your portfolio, sell both stocks and bonds in a 4:1 ratio. or (3:1 or whatever works for you) Also, just as you dollar-cost-average purchases of securities, you can do the same thing on the way out. Plan your sales and spread them over a period of time, especially if you have mutual funds. "Don't set mental anchor points. I am saying this as a total hypocrite, mind you, it isn't easy to follow that advice. My suggestion would be to look at each investment and ask yourself, ""Would I buy that at today's price?"", because if you wouldn't you need to sell regardless of whether you are cashing out. Effectively by staying in an investment you no longer believe in, you are giving up the opportunity cost of investing that money in something with a real chance to  give you a return, or in your case whatever purpose you have in mind for the cash." So I don't have any problems with your analysis or the comments associated with it. I just wanted to mention that no one is talking about taxes. Your answer....Figure out new portfolio breakdown and sell to 1.) Get money I need and 2.) re-balance the portfolio to my new target allocations is completely correct.  (Unimpeachable in my opinion.) However, when you calculate what you need to sell to meet your current cash needs make sure to include in that analysis money to pay taxes on anything you sell for a gain, or keep some invested to account for the tax money you would save by selling things for a loss.  The actual mechanics of calculating what these amounts are are fairly involved but not difficult to understand. (IE every situation is different.) Best of luck to you, and I hope your cashflow gets back up to its previous level soon. You are right about the stock and index funds, with dollar cost averaging over several years, the daily price of the security (especially a dividend paying security) will not matter* because your position will have accumulated larger over several entry points, some entries with cheaper shares and some entries with more expensive shares. In the future your position will be so large that any uptick will net you large gains on your original equity. *not matter being a reference to even extreme forms of volatility. But if you had all your equity in a poor company and tanked, never to rise again, then you would still be in a losing position even with dollar cost averaging. If your only other holdings are bonds, then you MAY want to sell those to free up capital. You have to understand what risk is and how much risk you want to take on, and weight your portfolio accordingly.  I think your 80/20 split based on wrong assumptions is the wrong way to look at it.  It sounds like your risk appetite has changed. Risk is deviation from expected, so risk is not bad, and you can have cases where everyone would prefer the riskier asset.   If you think the roulette table is too risky, instead of betting $1, stick 50c in your pocket and you changed the payoffs from $2 or 0 to 50c or $1.50 If your risk appetite has changed - change your risk exposure.  If not, then all you are saying is I bought the wrong stuff earlier, now I should get out.
Rebalancing your portfolio doesn't have to include selling.  You could simply adjust your buying to keep your portfolio in balance.  If you portfolio has shifted from 50% stocks and 50% bonds to 75% stocks and 25% bonds, you can just only use new savings to buy bonds, until you are back at 50-50. Remember to take into account taxes if you are thinking of selling to rebalance in taxable accounts. The goal of rebalancing is to keep your exposures the way that you want them.  Assuming that you had a good reason to have a portfolio of 50% stocks and 50% bonds, you probably want to keep your portfolio similar in the future.  If you end up with a portfolio of 75% stocks and 25% bonds due to stock market fluctuations, the exposure and the risk / return profile of your portfolio will have changed, and it's probably not something that you want. You don't want to rebalance just for the sake of rebalancing either.  There can be costs to rebalancing (taxes, transaction fees, etc...) and these aren't always worth the effort.  That's why you don't need to rebalance every month or if your portfolio has shifted from 50/50 to 51/49. I take a look at my portfolio once a year, and adjust my automated investments so that by the end of the next year I'm back to the ratio I want. What you choose to invest in depends largely on your own goals and time horizon.  You state that your time horizon is a few decades. Most studies have shown that the equity market as a whole has outperformed most other asset types (except perhaps property in some cases) over the long term.  The reason that time horizon is important is that equities are quite volatile. Who knows whether your value will halve in the next year? But we hope that over the longer term, things come out in the wash, and tomorrow's market crash will recover, etc.  However, you must realize that if your goals change, and you suddenly need your money after 2 years, it might be worth less in two years than you expect. Ponder this. Suppose that a reputable company or government were to come out and say hey, we are going to issue some 10 year bonds at 6.4%. Anyone interested in buying some? Assume that the company or government is financially solid and there is zero chance that they will go bankrupt. Think those bonds would sell? Would you be interested in buying such a bond? Well, I would wager that these bonds would sell like hotcakes, despite the fact that the long term stock market return beats it by a half percent. Heck, vanguard's junk bond fund is hot right now. It only yields 4.9% and those are junk bonds, not rock solid companies (see vanguard high yield corporate bond fund) Every time you make an extra principal payment on your student loan, you are effectively purchasing a investment with a rock solid, guaranteed 6.4% return for 10 years (or whatever time you have left on the loan if make no extra payments). On top of that, paying off a loan early builds your credit reputation, improves your monthly cash flow once the loan is paid, may increase your purchasing power for a house or car, and if nothing else, it frees you from being a slave to that debt payment every month.  Edit Improved wording based on Ross's comment Bonds by themselves aren't recession proof.  No investment is, and when a major crash (c.f. 2008) occurs, all investments will be to some extent at risk. However, bonds add a level of diversification to your investment portfolio that can make it much more stable even during downturns. Bonds do not move identically to the stock market, and so many times investing in bonds will be more profitable when the stock market is slumping.  Investing some of your investment funds in bonds is safer, because that diversification allows you to have some earnings from that portion of your investment when the market is going down. It also allows you to do something called rebalancing.  This is when you have target allocation proportions for your portfolio; say 60% stock 40% bond.  Then, periodically look at your actual portfolio proportions.  Say the market is way up - then your actual proportions might be 70% stock 30% bond.  You sell 10 percentage points of stocks, and buy 10 percentage points of bonds. This over time will be a successful strategy, because it tends to buy low and sell high. In addition to the value of diversification, some bonds will tend to be more stable (but earn less), in particular blue chip corporate bonds and government bonds from stable countries.  If you're willing to only earn a few percent annually on a portion of your portfolio, that part will likely not fall much during downturns - and in fact may grow as money flees to safer investments - which in turn is good for you. If you're particularly worried about your portfolio's value in the short term, such as if you're looking at retiring soon, a decent proportion should be in this kind of safer bond to ensure it doesn't lose too much value.   But of course this will slow your earnings, so if you're still far from retirement, you're better off leaving things in growth stocks and accepting the risk; odds are no matter who's in charge, there will be another crash or two of some size before you retire if you're in your 30s now. But when it's not crashing, the market earns you a pretty good return, and so it's worth the risk. "they said the expected returns from the stock market are around 7-9%(ish).  (emphasis added) The key word in your quote is expected.  On average ""the market"" gains in the 7-9% range (more if you reinvest dividends), but there's a great deal of risk too, meaning that in any given year the market could be down 20% or be  up 30%. Your student loan, on the other hand, is risk free.  You are guaranteed to pay (lose) 4% a year in interest.  You can't directly compare the expected return of a risk-free asset with the expected return of a risky asset.  You can compare the risks of two assets with equal expected returns, and the expected returns of assets with equal risks, but you can't directly compare returns of assets with different risks.  So in two years, you might be better off if you had invested the money versus paying the loan, or you might be much worse off.  In ten years, your chances of coming out ahead are better, but still not guaranteed. What's confusing is I've heard that if you're investing, you should be investing in both stocks and bonds (since I'm young I wouldn't want to put much in bonds, though). So how would that factor in?  Bonds have lower risk (uncertainty) than stocks, but lower expected returns.  If you invest in both, your overall risk is lower, since sometimes (not always) the gain in stocks are offset by losses in bonds).  So there is value in diversifying, since you can get better expected returns from a diversified portfolio than from a single asset with a comparable amount of risk.  However, there it no risk-free asset that will have a better return than what you're paying in student loan interest." Because stock markets don't always go up, sometimes they go down. Sometimes they go way down. Between 2007 and 2009 the S&P 500 lost over half its value. So if in 2007 you thought you had just enough to retire on, in 2009 you'd suddenly find you had only half of what you needed! Of course over the next few years, many of the stocks recovered value, but if you had retired in 2008 and depended on a 401k that consisted entirely of stocks, you'd have been forced to sell a bunch of stocks near the bottom of the market to cover your retirement living expenses. Bonds go up and down too, but usually not to the same extent as stocks, and ideally you aren't selling the bonds for your living expenses, just collecting the interest that's due you for the year. Of course, some companies and cities went bankrupt in the 2008 crisis too, and they stopped making interest payments.  Another risk is that you may be forced to retire before you were actually planning to. As you age you are at increasing risk for medical problems that may force an early retirement. Many businesses coped with the 2008 recession by laying off their older workers who were earning higher salaries. It wasn't an easy environment for older workers to find jobs in, so many folks were forced into early retirement. Nothing is risk free, so you need to make an effort to understand what the risks are, and decide which ones you are comfortable with. "A few points that I would note: Call options - Could the bond be called away by the issuer? This is something to note as some bonds may end up not being as good as one thought because of this option that gets used. Tax considerations - Are you going for corporate, Treasury, or municipals? Different ones may have different tax consequences to note if you aren't holding the bond in a tax-advantaged account,e.g. Roth IRA, IRA or 401k. Convertible or not? - Some bonds are known as ""convertibles"" since the bond comes with an option on the stock that can be worth considering for some kinds of bonds. Inflation protection - Some bonds like TIPS or series I savings bonds can have inflation protection built into them that can also be worth understanding. In the case of TIPS, there are principal adjustments while the savings bond will have a change in its interest rate. Default risk - Some of the higher yield bonds may have an issuer go under which is another way one may end up with equity in a company rather than getting their money back. On the other side, for some municipals one could have the risk of the bond not quite being as good as one thought like some Detroit bonds that may end up in a different result given their bankruptcy but there are also revenue bonds that may not meet their target for another situation that may arise. Some bonds may be insured though this requires a bit more research to know the credit rating of the insurer. As for the latter question, what if interest rates rise and your bond's value drops considerably? Do you hold it until maturity or do you try to sell it and get something that has a higher yield based on face value?" crank out expensive shares when markets are frothy Corporations go public (sell their shares for the first time) in market conditions that have a lot of liquidity (a lot of people buying shares) and when they have to make the fewest concessions to appease an investing public. When people are greedy and looking to make money without using too much due diligence. Think Netscape's IPO in 1995 or Snapchat's IPO in 2017. They also issue more shares after already being public in similar circumstances. Think Tesla's 1 billion dollar dilution in 2017. Dilution results in the 1 share owning less of the company. So in a less euphoric investing environment, share prices go down in response to dilution. See Viggle's stock for an example, if you can find a chart. issue debt Non-financial companies create bonds and sell bonds. Why is that surprising to you? Cash is cash. This is called corporate bonds or corporate debt. You can buy Apple bonds right now if you want from the same brokers that let you buy stocks. mutual fund investor Bernstein is making a cynical assessment of the markets which carries a lot of truth. Dumping shares on your mom's 401k is a running gag amongst some financial professionals. Basically mutual fund investors are typically the least well researched or most gullible market participants to sell to, influenced by brand name more than company fundamentals, who will balk at the concept of reading a prospectus. Financial professionals and CFOs have more information than their investors and can gain extended advantages because of this. Just take the emotions out of it and make objective assessments. "I think this is a good question with no single right answer.  For a conservative investor, possible responses to low rates would be: Probably the best response is somewhere in the middle: consider riskier investments for a part of your portfolio, but still hold on to some cash, and in any case do not expect great results in a bad economy. For a more detailed analysis, let's consider the three main asset classes of cash, bonds, and stocks, and how they might preform in a low-interest-rate environment. (By ""stocks"" I really mean mutual funds that invest in a diversified mixture of stocks, rather than individual stocks, which would be even riskier.  You can use mutual funds for bonds too, although diversification is not important for government bonds.) Cash. Advantages: Safe in the short term.  Available on short notice for emergencies. Disadvantages: Low returns, and possibly inflation (although you retain the flexibility to move to other investments if inflation increases.) Bonds. Advantages: Somewhat higher returns than cash.  Disadvantages: Returns are still rather low, and more vulnerable to inflation.  Also the market price will drop temporarily if rates rise. Stocks. Advantages: Better at preserving your purchasing power against inflation in the long term (20 years or more, say.)  Returns are likely to be higher than stocks or bonds on average.  Disadvantages:  Price can fluctuate a lot in the short-to-medium term.  Also, expected returns are still less than they would be in better economic times. Although the low rates may change the question a little, the most important thing for an investor is still to be familiar with these basic asset classes.  Note that the best risk-adjusted reward might be attained by some mixture of the three." Unfortunately, that's a call only you can make and whichever route you choose comes with advantages and disadvantages.  If you manage your money directly, you may significantly reduce costs (assuming that you don't frequently trade index funds or you use a brokerage like RobinHood) and take advantage of market returns if the indexes perform well.  On the other hand, if the market experiences some bad years, a professional might (and this is a huge might) have more self-discipline and prevent a panic sell, or know how to allocate accordingly both before and after a rise or fall (keep in mind, investors often get too greedy for their own good, like they tend to panic at the wrong time).  As an example of why this might is important: one family member of mine trusted a professional to do this and they failed; they bought in a rising market and sold in a falling market. To avoid the above example, if you do go with the professional service, the best course of action is to look at their track record; if they're new, you might be better on your own.  Since I assume this one or more professionals at the company, testing to see what they've recommended over the years might help you evaluate if they're offering you a good choice. Finally, depending on how much money you have, you could always do what Scott Adams did: he took a portion of his own money and managed it himself and tested how well he did vs. how well his professional team did (if I recall, I believe he came out ahead of his professional team).  With two decades left, that may help guide you the rest of the way, even through retirement. At twenty-two, you can have anywhere between 100%-70% of your securities portfolio in equities. It is reasonable to start at 100% and reduce over time.  The one thing that I would mention with that is that your target at retirement should be 70% stocks/30% bonds.  You should NEVER have more than 30% bonds.  Why?  Because a 70/30 mix is both safer than 100% bonds and will give a higher return.  Absent some market timing strategy (which as an amateur investor, you should absolutely avoid) or some complicated balancing scheme, there is never a reason to be at more than 30% bonds.   A 50/50 mix of stocks and bonds or a 100% bonds ratio not only returns less than the 70/30 mix, it is actually riskier.  Why?  Because sometimes bonds fall.  And when they do, stocks generally gain.  And vice versa.  Because of this behavior, the 70/30 mix is less likely to fall than 50% or 100% bonds.   Does that mean that your stock percentage should never drop below 70%?  No.  If your portfolio contains things other than stocks and bonds, it is reasonable for stocks to fall below 70%.  The problem is that when you drop stocks below 70%, you should drop bonds below 30% as well.  So you keep the stock to bond ratio at 7:3.   If you want to get a lower risk than a 70/30 mix, then you should move into cash equivalents.  Cash equivalents are actually safer than stocks and bonds either individually or in combination.  But at twenty-two, you don't really need more safety.   At twenty-two, the first thing to do is to build your emergency fund.  This should be able to handle six months of expenses without income.  I recommend making it equal to six months of your income.  The reason being that it is easy to calculate your income and difficult to be sure of expenses.  Also, you can save six months of income at twenty-two.   Are you going to stay where you are for the next five years?  At twenty-two, the answer is almost certainly no.  But the standard is the five year time frame.  If you want a bigger place or one that is closer to work, then no.  If you stay somewhere at least five years, then it is likely that the advantages to owning rather than renting will outweigh the costs of switching houses.  Less than five years, the reverse is true.  So you should probably rent now.   You can max out your 401k and IRA now.  Doing so even with a conservative strategy will produce big returns by sixty-seven.  And perhaps more importantly, it helps keep your spending down.  The less you do spend, the less you will feel that you need to spend.   Once you fill your emergency fund, start building savings for a house.  I would consider putting them in a Real Estate Investment Trust (REIT).  A REIT will tend to track real estate.  Since you want to buy real estate with the results, this is its own kind of safety.  It fell in value?  Houses are probably cheap.  Houses increasing in price rapidly?  A REIT is probably growing by leaps and bounds.  You do this outside your retirement accounts, as you want to be able to access it without penalty. In this type of strategy profit is made when the shares go down as your main position is the short trade of the common stock. The convertible instruments will tend to move in about the same direction as the underlying (what it can be converted to) but less violently as they are traded less (lower volatility and lower volume in the market on both sides), however, they are not being used to make a profit so much as to hedge against the stock going up. Since both the bonds and the preference shares are higher on the list to be repaid if the company declares bankruptcy and the bonds pay out a fixed amount of interest as well, both also help protect against problems that may occur with a long position in the common stock.  Essentially the plan with this strategy is to earn fixed income on the bonds whilst the stock price drops and then to sell both the bonds and buy the stock back on the market to cover the short position. If the prediction that the stock will fall is wrong then you are still earning fixed income on the debt and are able to convert it into stock at the higher price to cover the short sale eliminating, or reducing, the loss made on the short sale. Effectively the profit here is made on the spread between the price of the bond, accounting for the conversion price, and the price of the stock and that fixed income is less volatile (except usually in the junk market) than stock. A stock is an ownership interest in a company.  There can be multiple classes of shares, but to simplify, assuming only one class of shares, a company issues some number of shares, let's say 1,000,000 shares and you can buy shares of the company. If you own 1,000 shares in this example, you would own one one-thousandth of the company.  Public companies have their shares traded on the open market and the price varies as demand for the stock comes and goes relative to people willing to sell their shares. You typically buy stock in a company because you believe the company is going to prosper into the future and thus the value of its stock should rise in the open market. A bond is an indebted interest in a company.  A company issues bonds to borrow money at an interest rate specified in the bond issuance and makes periodic payments of principal and interest.  You buy bonds in a company to lend the company money at an interest rate specified in the bond because you believe the company will be able to repay the debt per the terms of the bond.  The value of a bond as traded on the open exchange varies as the prevailing interest rates vary.  If you buy a bond for $1,000 yielding 5% interest and interest rates go up to 10%, the value of your bond in the open market goes down so that the payment terms of 5% on $1,000 matches hypothetical terms of 10% on a lesser principal amount.  Whatever lesser principal amount at the new rate would lead to the same payment terms determines the new market value.   Alternatively, if interest rates go down, the current value of your bond increases on the open market to make it appear as if it is yielding a lower rate. Regardless of the market value, the company continues to pay interest on the original debt per its terms, so you can always hold onto a bond and get the original promised interest as long as the company does not go bankrupt. So in summary, bonds tend to be a safer investment that offers less potential return.  However, this is not always the case, since if interest rates skyrocket, your bond's value will plummet, although you could just hold onto them and get the low rate originally promised. It's all about risk. These guidelines were all developed based on the risk characteristics of the various asset categories. Bonds are ultra-low-risk, large caps are low-risk (you don't see most big stocks like Coca-Cola going anywhere soon), foreign stocks are medium-risk (subject to additional political risk and currency risk, especially so in developing markets) and small-caps are higher risk (more to gain, but more likely to go out of business).  Moreover, the risks of different asset classes tend to balance each other out some. When stocks fall, bonds typically rise (the recent credit crunch being a notable but temporary exception) as people flock to safety or as the Fed adjusts interest rates. When stocks soar, bonds don't look as attractive, and interest rates may rise (a bummer when you already own the bonds). Is the US economy stumbling with the dollar in the dumps, while the rest of the world passes us by? Your foreign holdings will be worth more in dollar terms. If you'd like to work alternative asset classes (real estate, gold and other commodities, etc) into your mix, consider their risk characteristics, and what will make them go up and down. A good asset allocation should limit the amount of 'down' that can happen all at once; the more conservative the allocation needs to be, the less 'down' is possible (at the expense of the 'up'). .... As for what risks you are willing to take, that will depend on your position in life, and what risks you are presently are exposed to (including: your job, how stable your company is and whether it could fold or do layoffs in a recession like this one, whether you're married, whether you have kids, where you live). For instance, if you're a realtor by trade, you should probably avoid investing too much in real estate or it'll be a double-whammy if the market crashes. A good financial advisor can discuss these matters with you in detail. It doesn't matter which way you use.  As long as your comfortable with the overall level of risk/reward in your portfolio, that's what matters.  (Though I will say that there are more investment vehicles than stocks, bonds, and cash that are worth considering.)