How to Manage Bonds and Stocks in Today’s Market

How to Manage Bonds and Stocks in Today’s Market

Introduction

When we think about investing, most people’s minds immediately jump to stocks. After all, they’re exciting, dynamic, and always in the news. But in Chapter 4 of The Intelligent Investor, Benjamin Graham shifts our attention toward something far more stable yet equally important: bonds and balanced investing. He explains why smart investors should not put all their money into stocks, and why bonds deserve a permanent place in a portfolio.

This chapter is particularly powerful because it emphasizes the balance between risk and safety, which is the foundation of long-term investing. In today’s 2025 market, where uncertainty is a daily reality, these lessons feel more relevant than ever. Let’s break down the key ideas in simple words and connect them to our current financial world.

Why Bonds Matter in Investing

Graham begins by highlighting the importance of bonds — government bonds, municipal bonds, and high-grade corporate bonds. Unlike stocks, bonds are much less volatile. When you buy a bond, you’re lending money to a company or government, and they promise to pay you interest plus your principal back at maturity.

For conservative investors, bonds act as a safety cushion. They may not give spectacular returns, but they protect you from total financial ruin if the stock market crashes. Think of them as the seatbelt in your financial car. You hope you never face a crash, but if you do, you’ll be thankful for the protection.

In India, government securities like G-Secs have become more attractive due to the RBI’s push for retail participation. Investors can now directly buy government bonds through RBI Retail Direct. Similarly, in the US, Treasury bonds gained popularity again in 2024 after the Fed raised interest rates to control inflation. Many cautious investors moved their money from risky tech stocks into Treasury bonds for stability.

The Risk of Putting Everything in Stocks

Graham warns against putting 100% of your money into stocks, no matter how confident you are. Stocks can give higher returns, but they also carry higher risk. A major market downturn can wipe out years of gains in months.

He uses the example of the 1929 stock market crash, where countless investors lost everything because they were fully invested in equities. The lesson is timeless: don’t let greed blind you.

Investors who went “all-in” on cryptocurrencies like Bitcoin or altcoins in 2021–22 saw massive gains but also faced brutal losses in 2022–23. Even today, in 2025, Bitcoin remains highly volatile — trading above $70,000 one month and dropping thousands the next. A balanced investor who had bonds alongside crypto would have slept much better at night.

The 50-50 Rule: Balance Between Bonds and Stocks

One of the most practical lessons from this chapter is Graham’s advice that the investor should keep their portfolio divided between stocks and bonds. His general recommendation:

At least 25% in bonds

At least 25% in stocks

And never more than 75% in either

This gives investors flexibility while ensuring they don’t get too carried away with risk. If the stock market looks overheated, you can lean toward 75% bonds. If stocks look undervalued, you can tilt toward 75% stocks. But you never abandon balance.

The Indian stock market is currently trading at record highs, with the Nifty50 crossing 26,000 points. While this is exciting, analysts warn of possible corrections. Smart investors are not putting everything into equities. Instead, many are parking part of their wealth into State Development Loans (SDLs) and corporate bonds to balance the risk.

Inflation and the Real Return Problem

Another major point Graham raises is inflation. Inflation eats into the real value of your money. Even if a bond pays you 5% interest, if inflation is running at 6%, you’re actually losing purchasing power.This is why investors must always think in terms of real return (return after adjusting for inflation), not just the nominal return.

In 2022–23, inflation was a global concern. In India, retail inflation often hovered around 6–7%. Even though fixed deposits offered 6%, investors were barely breaking even in real terms. That’s why inflation-linked bonds and inflation-protected Treasury securities (TIPS) in the US became popular. By 2025, inflation has cooled somewhat, but investors still remain alert because global oil prices and geopolitical tensions can change the scenario anytime.

Types of Bonds: Which Ones Are Safer?

Graham categorizes bonds into government, municipal, and corporate types. His advice is straightforward: stick to high-quality bonds. Chasing high interest from weak companies is a recipe for disaster.

Government Bonds: Safest, backed by the state.

Municipal Bonds: Issued by cities/states, safe but watch taxation.

Corporate Bonds: Riskier, but higher return. Always choose well-rated companies.

Investors in India are now exploring corporate bonds from blue-chip companies like Reliance and Infosys through platforms such as NSE Direct and fintech apps. However, the recent defaults by smaller NBFCs in 2023 reminded investors why credit ratings matter. Many who blindly invested in high-interest bonds of weaker companies faced losses.

Rebalancing: How Smart Investors Stay Safe

Another gem from this chapter is the concept of rebalancing. If you start with 50% stocks and 50% bonds, over time, the stock market may rise and suddenly your portfolio becomes 70% stocks and 30% bonds. That’s riskier than you originally intended.

A disciplined investor will sell some stocks and buy more bonds to bring the ratio back to 50-50. This forces you to “sell high and buy low,” which is the essence of intelligent investing.

Many investors who followed this rule during the 2020–21 bull run booked profits when their stocks grew too much compared to bonds. They rebalanced. By contrast, those who ignored rebalancing often ended up overexposed and suffered heavy losses when markets corrected in 2022.

Bonds vs. Stocks: Which Should You Prefer?

Graham does not say bonds are better than stocks or vice versa. Instead, he emphasizes that both have a role.

Stocks = Growth potential, inflation protection, ownership in companies.

Bonds = Stability, predictable income, downside protection.

The intelligent investor is not a gambler. He or she knows how to mix both to achieve steady, long-term growth with manageable risk.

A young professional in India starting in 2025 may keep 70% in equity mutual funds/ETFs and 30% in bonds. Meanwhile, a retired person might reverse the ratio to 70% bonds and 30% equities to ensure safety and regular income.

Lessons for Today’s Investors

1. Don’t chase returns blindly. Always respect risk.
2. Balance your portfolio. A mix of bonds and stocks protects you from extremes.
3. Rebalance regularly. Don’t let market fluctuations change your risk profile.
4. Account for inflation. Look at real returns, not just numbers on paper.
5. Prioritize quality. In bonds, safety matters more than a few extra percentage points.

The Wisdom of Balance

Chapter 4 of The Intelligent Investor is less flashy than chapters about stock-picking strategies, but it carries a deep truth: long-term success is not about hitting jackpots, but about avoiding disasters. Bonds, balance, and discipline are what protect ordinary investors from financial storms.