Bonds

How to course correct when you simply can't stay the course De-risking during market volatility can be costly. Here’s how to do it without breaking the bank. The best course of action during market volatility is often inaction. That’s because selling riskier assets at a loss locks in those losses. It foregoes their potential for future growth, and it might also trigger capital gains taxes in the process. But if taking some sort of action feels necessary, then modestly reducing your overall risk exposure can be a reasonable alternative. Consider dialing down your existing stock allocation by a few percentage points, or lower the costs of recalibrating by using your future deposits instead. Either way, the solution may be the same: sprinkling in more bonds. Consider bonds to calm your investing nerves When people talk about diversification, equities like international stocks get most of the attention. But no less important in the role of managing risk are bonds. These are the loans given to governments and companies by investors, and while they're not completely risk-free (no asset is), the relatively-modest interest they tend to pay out can feel like a windfall when stock values are plunging. They won’t negate all of the volatility of stocks, but they can help smooth things out and preserve capital. This is why all of our recommended allocations include holding at least some bonds. One way to de-risk some of your future investing is with one of our portfolios made up of both stocks and bonds (Core, Value Tilt, etc.). We’ll recommend a risk level based on your goal, but we make it easy to dial up the bond allocation to your preference. Over time, you can slowly finetune things until your collective risk feels right. Or you can let us automatically adjust it based on your target date. We also offer two portfolios comprised entirely of bonds, each one designed for a different use: The BlackRock Target Income portfolio, designed to help you limit market volatility, preserve wealth, and generate income. The Goldman Sachs Tax-Smart Bonds portfolio, designed for high-income individuals seeking a higher after-tax yield compared to a cash account. Don’t forget about the role of cash One of the best ways to mitigate your overall financial risk is by shoring up your emergency fund, which may include a high-yield cash account like our Cash Reserve. Imagine losing your income stream, and how much time you'd want to get back on your feet. A good place to start is 3-6 months' worth of your essential expenses, but your right amount is whatever helps you sleep more soundly at night. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. Steadying the ship during unsteady times As we mentioned up front, right-sizing your risk during downturns isn’t always cheap. But there are ways to minimize the costs. Lowering your risk profile incrementally is one of them, and stretching out your safety net is another. Either way, it’s okay to recalibrate your risk tolerance from time-to-time, and you can do it wisely with Betterment.

A big bill, ballooning debt, and a weakening U.S. dollar The “Big Beautiful Bill” could take our national debt to unseen levels. Will international markets reap the rewards? In early July, Congress passed the One Big Beautiful Bill Act (OBBBA), and while its full impact won’t be felt for some time, two key aspects of it seem at odds. The first is that it permanently extends certain provisions of the 2017 Tax Cuts and Jobs Act, including lower individual tax rates and higher standard deductions. The similar corporate and individual income boosting nature of the OBBBA has likely played some part in the rally in stocks since April. Yet as much as markets eat this type of legislation up, it comes with a strong risk of heartburn. That’s because the second major takeaway from the bill is that it’s forecasted to add around $4 trillion to the national debt over the next 10 years. The chart below shows the national debt as a share of U.S. GDP, and the dashed orange line shows the estimated trajectory after the passage of the OBBBA. It’s projected to grow to levels unlike anything we’ve seen before, including World War II. So what does all this mean for markets? Burgeoning debt means a larger supply of Treasury bonds that the Federal government uses to borrow. This may in turn cause interest rates to rise in the long term as bond investors with creeping doubts about our country’s fiscal situation demand a lower price and a higher yield for its debt. There are also estimates that the bill may be a drag on economic growth as bigger deficits and government borrowing start to crowd out private investment. We may not fully know the outcomes of tariffs and the OBBBA for some time, but one place we’re seeing policy changes already is in demand for the U.S. dollar. Since January, we've seen a significant weakening in the dollar relative to other major currencies as the trade war and fiscal outlook have shaken confidence in U.S. markets. The dollar is down almost 10% over the last six months, the largest decline in such a span in over 30 years. A weaker dollar has the effect of making imports in the U.S. more expensive for consumers, but it also makes international investments worth more, as the values of companies overseas have gone up in dollar terms just by virtue of their local currencies strengthening relative to the dollar. This currency dynamic has contributed to the strong returns of our globally-diversified portfolios in 2025. The first half of the year offers a case study in the benefits of being globally-diversified, which smooths out volatility as various parts of the world take turns outperforming each other. It may not make the news headlines any less scary, but it can benefit your investing’s bottom line. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more.

The behavioral case for bonds How bonds can build a buffer that makes your portfolio more resilient, and you more likely to stay invested Key takeaways Bonds are loans investors make to companies, governments, and other entities in exchange for interest. Although their historical returns are lower than stocks, their relative stability makes them an ideal buffer during bouts of market volatility. Bonds can help investors stay in the game and preserve capital for the next market recovery. Betterment makes it simple to mix them into your portfolio now and adjust along the way. When most of us think about investing, we think about the flashy headlines of the stock market, the ups and downs of brand names and the companies behind them. Bonds, by contrast, can feel boring. But they’re often the unsung heroes of a well-balanced portfolio. They help smooth out your investing journey, making it more likely you stay in the wealth-building game. So, what exactly is a bond? At its simplest, a bond is a glorified loan, but one that you make, not the other way around. You’re lending your money to an entity (usually a company or government) for a set period, and in exchange, they promise to pay you back the full amount on a specific date, plus a little extra interest (aka “yield”) along the way. Bonds commonly break down along two lines: Investment-grade bonds — These are issued by less risky, more creditworthy entities and offer lower yields as a result. The U.S. government is one of the biggest players here—issuing tens of billions in Treasury bonds—but corporate bonds also play a role. High-yield bonds — Bonds issued by riskier, less creditworthy players (both corporate and government) and carrying higher yields in turn. These types of bonds are often under-represented in funds that track a pre-set list of bonds, meaning there’s more potential for higher returns with the right active management. For most of the 2010s, interest rates were stuck near zero, which meant bonds of all kinds weren't paying much. But the landscape has shifted since the pandemic. Since then, the "boring" part of your portfolio is actually working quite hard, offering yields that look a lot more attractive than they used to. Why bonds matter, regardless of your goal’s timeline If you’re in your 20s or 30s, you may think, “I’ve got 30 years to grow my money. Why not just go 100% stocks?” It’s not the craziest idea. Over longer periods, stocks generally outperform bonds. But investing isn't just a math problem; it's a psychology problem. The real danger to your wealth isn't a market dip—it's you hitting the "sell" button during a market dip because the choppy waters feel like too much to bear. Bonds can help calm the storm in this sense. When the stock market has a bad week (or a bad year), they tend to hold more of their value, or even gain in value. They also generally continue to pay out interest. This in theory means your overall portfolio experiences smaller dips, and it’s a lot easier to stay invested when your portfolio is down 15% instead of 30%. Bonds can also help preserve your portfolio’s precious capital, meaning there’s more fuel for the fire as stocks recover and grow beyond their pre-dip levels. This is why our allocation advice for even the longest of timelines still includes some bonds. Putting bonds into practice (and your portfolio) So how do you actually "do" bond investing without spending your weekends reading government balance sheets? You shouldn’t have to be an expert to benefit from a sophisticated bonds strategy. That’s why most of our portfolios include a globally-diversified mix of both stocks and bonds, with bond allocations that can automatically increase as your goal’s target date nears. You can also manually dial your amount of bonds up or down at any time—we’ll even preview the potential tax impact of the changes you’re considering. In certain cases, one of our bonds-only portfolios may make even more sense. For investors looking to generate income (e.g. retirees), for example, we offer the BlackRock Target Income portfolio. And for those with incomes falling in the 32% tax bracket or higher, we offer the Goldman Sachs Tax-Smart Bonds portfolio. It’s personalized based on customers’ unique tax situations and focuses on municipal bonds issued by state and local governments, which often offer tax-free interest at the federal level. The bottom line on bonds Bonds are rarely trendy, but their strong track record of stability can help cushion the chaos when market volatility hits next. Betterment’s lineup of stock and bond portfolios make it easy to mix some into your investing today, then adjust as you go. Because your right amount of bonds is whatever helps you stay invested.