Let's presume a market crash is coming sometime within 6 months to a year. Theoretically speaking, would it be wise to reallocate my index fund, which is presently about 80 % stocks and 20% bonds, to more bonds? - let's say 80% bonds and 20% stocks

I have heard as the Fed increases interest rates, bonds will take a major hit. If stocks and bonds both take a major hit, what would be a good alternative? Theoretically speaking of course.

If bonds will take a hit, would it be wise to allocate even more to stocks?

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    Diversify, rebalance when major changes occur, and stop worrying about it.
    – keshlam
    Commented Aug 31, 2014 at 16:04
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    Also: How soon will you need the money? If you may have to draw it out soon, it probably shouldn't be in investments at all. If it'll be a decade before you need it, short-term recessions should be seen as buying opportunities since the market will recover if given time -- unless it's massively overheated, which I don't think is the case right now.
    – keshlam
    Commented Aug 31, 2014 at 19:45
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    Note that a security is pretty much any type of investment vehicle, including both bonds and equity shares. You probably meant "bonds vs equities" in your title.
    – dg99
    Commented Sep 3, 2014 at 17:10
  • Betting against the Fed is never a good idea. Commented Sep 15, 2014 at 23:18
  • Who said anything about betting against the Fed?
    – derelict
    Commented Sep 16, 2014 at 0:02

3 Answers 3


Cash would be the better alternative assuming both stocks take a major hit in ALL categories AND the Fed raise rates at the same time for some reason. Money market funds that may have relatively low yields at the moment would likely be one of the few securities not to be repriced downward as interest rates rising would decrease bond values which could be another crash as I could somewhat question how broad of a crash are you talking here. There are more than a few different market segments so that while some parts may get hit really hard in a crash, would you really want to claim everything goes down?

Blackrock's graphic shows in 2008 how bonds did the best and only it and cash had positive returns in that year but there is something to be said for how big is a crash: 20%, 50%, 90%?


Diversify into leveraged short/bear ETFs

and then you can quit your job and yell at your boss "F you I'm short your house!"

edit: this is a quote from Greg Lippmann and mentioned in the book "The Big Short"


I would suggest looking into Relative Strength Asset Allocation. This type of investment strategy keeps you invested in the best performing asset classes. As a result of investing in this manner it removes the guesswork and moves naturally (say into cash) when the stock market turns down.

There is a good whitepaper on this subject by Mebane Faber titled Relative Strength Strategies for Investing.

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