metal0130 t1_j6p7rxk wrote
super generic example: why stocks and bonds, and not just stocks?
Often when the stocks are tanking hard, bonds are holding steady or even increasing in value. If the market crashes 50% and your 100K is all stocks, you're now at 50k.
But if you're (for simplicity sake) 50/50 stocks and bonds. when stocks crash 50%, maybe bonds remain flat and you're only down to 75k instead of 50k.
The tradeoff is that bonds don't appreciate in value as fast as stocks can... there's always a trade off. More risk of loss = more reward when things are going well. But more risk when you're older can wipe out a few hundred thousand, RIGHT as you are considering retiring. So diversification helps mitigate these risks. It's just that younger people have more time to recover from these downturns than older folks.
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