Stocks vs Bonds or Equity vs Debt

Benjamin Graham — Warren Buffett's mentor — advised keeping at least 25% of one's portfolio in bonds, even in the most attractive markets.

25% To 75%

Graham recommended maintaining a balance between equity and debt in one's portfolio; with a minimum of 25% for one and a converse maximum of 75% for the other, depending on market conditions.

"The investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50–50, between the two major investment mediums... "
Chapter 4 - General Portfolio Policy: The Defensive Investor, The Intelligent Investor


Graham's framework is as much about behavior, as it is about numbers. Accordingly, a lot of Graham's recommended investment processes are designed to keep the investor's more dangerous instincts in check.

The process of maintaining a balance between equity and debt in one's holdings has both psychological and practical benefits for the investor.

On the one hand, such a strategy keep the investor's energies focused on the right activities; and more importantly, away from the wrong ones. On the other, it ensures a sensible outcome for the investor no matter what the future outcome of the market.


One of the times when the astuteness of Graham's advice becomes most evident, is when the market drops.

A portfolio with 25% kept in bonds during a bull market, will have significant liquidity available for purchasing equities at bargain prices during a bear market.

Graham Resources