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I don’t know — any more than you do — what’s just ahead for the stock market. But the first quarter of 2025 has given investors plenty of reason to be nervous.

The traders and algorithms that move the market up and down like to possess at least some idea of which way the winds are blowing. Lately, those winds seemed to be unusually hard to predict.

Wall Street has not been happy, and the stock market has been on a wild ride this year amid increasing fears of a recession and the effects of higher tariffs.

For lots of investors, especially those who didn’t have money at stake through the first decade of this century, this was (or should have been) an unwelcome wake-up call. The call came with a message: The (mostly) bullish times since 2009 are not necessarily indicative of a golden future.

This is the fourth installment in a series of articles I call Investor Boot Camp 2025, and managing risk is the focus. Of all the tasks that investors must tackle, this one may be the trickiest.

If you’re willing to give this some time and serious thought, you can get it right. Or at least right enough.

You could always hire a financial adviser to figure this out for you. But I’ll give you the key data and insights such an adviser would bring to the table. And whichever way you go, the most important parts of the solution must come from you.

Your two overriding goals should be to meet your financial needs and avoid running out of money when you retire, no matter how long you live. 

I’ll start with a disclaimer: There is no perfect answer. The future is made up of too many unknowns.

• You don’t know what the markets will do, or when.
• You can’t know for sure in advance how you will react and respond.
• You don’t know how your needs will evolve as you get older.
• You don’t know how long you will live.

I’ve been an investor for more than 60 years, and I don’t know these things any more than you do.

However, I do know a lot of financial history. I’ve learned that stock markets sometimes go through money-losing periods that last for years. 

In the past, the main U.S. stock indexes have always recovered from losses like that. But the recovery can take a long time, and there’s no ironclad guarantee it will happen at all. 

If you can’t endure the short-term and medium-term pain, you won’t achieve the long-term gain. No adviser can do this for you, no matter how much you pay. And only you can determine how much discomfort you’re willing and able to accept.

Your task here is a basic balancing act. How much of your portfolio will be in stocks (more long-term gains, more interim pain) and how much in bonds (more comfort, lower long-term returns)?

The best tool I’ve ever found to help you do that is a large table of numbers, based on actual returns starting in 1970. I’ve been publishing and updating this table annually since 1995.

In this table (I’ll provide a link below) you’ll find year-by-year returns for stocks (represented by the S&P 500) and government bonds and nine combinations of the two. For each combination, you’ll see the ultimate outcome at the end of 2024.

The most useful information in the table shows the interim losses an investor had to endure in order to achieve those results.

To give you a taste, the table below shows some of this information for an all-bond portfolio, an all-stock portfolio and four combinations.

Historical returns and losses, combinations of S&P 500 and short-to-intermediate-term government bonds, 1970-2024

As you can see, each extra 20% allocated to stocks bumps up the long-term return — along with the worst periods.

The bottom line shows the percentage decline from a peak to the bottom before the start of a recovery.

It’s important to note that these “worst periods” are not actual losses unless you sell.

A good financial adviser will likely give you this information in some form and then discuss what level of risk-and-reward might be right for you.

If you could choose among these options and know what you would get, then it would be easy. I’m sorry, but it doesn’t work that way.

Your choice is most useful for managing your expectations and determining what you’re willing to commit to live with through the good times and the rough times.

When I was an adviser, I went through the process hundreds of times. And although there is no foolproof formula, here’s a process I might suggest. 

Using this full table, which goes back to 1970, start by trying to imagine how much of a one-year loss you will be able to tolerate without bailing out; do the same with three-year losses. Then find a column that matches, and that tells you a stock/bonds mix that may be right for you.

Here are three quick-and-dirty guidelines that might help. 

• If you’re young (perhaps under 40) and accumulating assets, consider a 100% stock portfolio. When the market goes down, that lets you buy more stocks at lower prices.
• If you’re near retirement or already retired, consider owning 40% to 60% in stocks. This is likely to keep you out of major trouble.
• If you are really nervous, or if you have a history of bailing out when times start to get tough, you could limit yourself to 30% in equities. However, that might mean you’ll need to save more before you retire or live on less when you retire — or both.

For more on this topic, I’ve created a podcast and a video.

In the next installment of Boot Camp 2025, we’ll tackle a topic that’s important to anyone saving for retirement: how to accumulate money for your future life without injecting too much pain into your present life.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement.

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