Stocks vs Bonds: How to Split Your Portfolio by Age

Why the stock-bond split matters more than picking individual investments

Decades of research on portfolio returns point to the same conclusion: your mix of asset classes (stocks vs bonds vs cash) explains far more of your long-term results and how bumpy the ride feels than which specific fund or stock you pick within each class.

Stocks (equities) represent ownership in companies. Over long stretches they've historically outgrown inflation and outgrown bonds, but they can drop sharply and unpredictably in any given year. Bonds are essentially loans you make to a government or company in exchange for interest; they typically pay less over time but swing far less in value, which makes them the shock absorber in a portfolio.

The reason age matters is simple: time is what lets you recover from a stock market downturn. Someone in their 20s who loses value in a market crash has decades of paycheques and future contributions ahead to ride it out. Someone about to retire and start drawing down savings doesn't have that luxury, so the same drop can force them to sell investments at a bad time.

The classic age-based rules of thumb (and why they're just a starting point)

A well-known rough guideline says to hold a bond percentage roughly equal to your age, meaning a 30-year-old might hold about 30% bonds and 70% stocks, while a 60-year-old flips that toward more bonds. A more modern variant nudges the stock allocation higher across the board, since Canadians are living longer and need their money to last further into retirement.

These rules are memorable, not scientific. They ignore your actual income stability, how much you've already saved, whether you have a workplace pension, your comfort with seeing account values drop, and when you'll actually need the money. Two 40-year-olds with identical incomes can reasonably hold very different mixes if one has a secure defined-benefit pension and the other doesn't.

Treat any age-based formula as a rough starting point to adjust, not a rule to follow blindly. The more useful question is: when do you need this specific pot of money, and how would you react if it dropped 25% the year before you needed it?

How the mix typically shifts across life stages

• In your 20s and 30s: with retirement decades away, a portfolio weighted heavily toward stocks is common, since there's time to recover from downturns and growth compounds longer.
• In your 40s and 50s: many people start gradually adding bonds as retirement comes into clearer view, both to dampen volatility and because the total dollar amount at risk is now much larger.
• In your late 50s and 60s, approaching or entering retirement: a more balanced mix, often with a meaningful bond and cash allocation, helps ensure that a market downturn right before or during early retirement doesn't force you to sell stocks at depressed prices to cover living expenses.
• In retirement itself: many retirees keep a notable stock allocation even in their 70s and 80s, because retirement can last 25-30 years and a portfolio that's entirely bonds and cash risks losing purchasing power to inflation over that span.

Putting this into practice with Canadian accounts

Your asset allocation decision applies within each account you hold, TFSA, RRSP, FHSA, or a taxable account, and it's worth thinking about your accounts together as one overall portfolio rather than picking a random mix in each one separately.

Account type can also interact with allocation: money in an FHSA earmarked for a home purchase in the next couple of years generally shouldn't sit in volatile stocks, since you don't have time to recover from a downturn before you need the cash. Money in an RRSP or TFSA meant for retirement decades away can typically afford more stock exposure.

Rebalancing, periodically selling a bit of whatever has grown to be oversized and buying more of what's shrunk, keeps your actual mix in line with your intended target as markets move. Many all-in-one funds and robo-advisor portfolios do this automatically, which is worth knowing if you'd rather not manage it by hand.

This is general education, not a recommendation to buy or sell any specific fund or security; your own timeline, other savings, and risk tolerance should drive the actual numbers you choose, and a fee-only financial planner can help you set them if your situation is complex.

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