Why Stocks and Bonds Work Together

Understanding volatility

Stocks and bonds have historically had a low correlation to each other, which can help smooth out volatility in a portfolio. Bonds can be a ballast to a portfolio during negative periods in the stock market. Stocks are more volatile than bonds so they experience drawdowns more frequently—and at greater magnitude.

Striking a Balance

Fixed income and equities have remained relatively uncorrelated throughout the years.

U.S. stock and bond drawdowns, January 1984-June 2025

Chart of U.S. stock (blue) and bond (orange) drawdowns from 1976 to mid-2025. Largest drops: stocks -51% (Nov 2007–Feb 2009) and bonds -17% (Aug 2020–Oct 2022). Inset table shows total returns: 2008 – stocks -37%, bonds +5%; 2022 – stocks -19%, bonds -13%; 2025 first half – stocks +6%, bonds +4%.

Source: Morningstar. Monthly max drawdown for U.S. Bonds, represented by the Bloomberg U.S. Govt/Credit Index from 1984-85 and Bloomberg U.S. Aggregate Bond Index thereafter; for U.S. Stocks, represented by the Russell 3000 Index from 1984-2Q2025. Indexes are unmanaged and can’t be invested in directly. Index returns represent past performance, are no guarantee of future performance, and not indicative of any specific investment.

The Upshot

Holding Fixed Income Can Be a Helpful Offset to Equities

Considering bonds as part of a diversified portfolio can help soften the impact of stock market drawdowns, helping you stay on track to meet your long-term goals.

Your Next Step Reach out to an expert

Regular rebalancing can help keep the balance of stocks and bonds in your portfolio at an optimal level for your risk tolerance and investing goals.

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Important Risk Disclosures

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. 

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Indices and benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Index return information is provided by vendors and although deemed reliable, is not guaranteed by Russell Investments or its affiliates. Due to timing of information, indices may be adjusted after the publication of this report.

Russell 3000® Index: Measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

Bloomberg U.S. Aggregate Bond Index: An index, with income reinvested, generally representative of intermediate-term government bonds, investment grade corporate debt securities, and mortgage-backed securities. (specifically: the Government/Corporate Bond Index, the Asset-Backed Securities Index, and the Mortgage-Backed Securities Index).

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Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates Management, L.P., with a significant minority stake held by funds managed by Reverence Capital Partners, L.P. Certain of Russell Investments' employees and Hamilton Lane Advisors, LLC also hold minority, non-controlling, ownership stakes.

Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.

© Russell Investments Group, LLC. 1995-2025. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.

First used: July 2025. RIFIS-26577 [EXP-06-2026]