Here’s a question that one of my readers asked.


Hi Andrew

I have a balanced portfolio of Etfs 40/60-bond/stock and I am not concerned whether the market is currently up or down as I am leaving my money to grow over 10 yrs. However, in my perhaps ignorance, I always thought when equities were down bonds were up-but I see now both my stocks and bonds are low-in fact my bonds -global-have consistently this year made big losses and the stocks gone up and down? Just asking for some information so I understand better.


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Hi Jen,

Usually, when stocks fall hard, bonds tend to rise.  This doesn’t happen every time.  But most of the time it does.  The current market downturn has been no exception.  You may be measuring the success of your bonds and stocks in different currencies.  Always compare apples to apples.  If you own a bond index that’s priced in U.S. dollars, you must compare that with a stock index priced in U.S. dollars.  If you have a global stock index priced in British pounds, compare that with a global bond index that’s priced in pounds as well.


Let me show you some examples.


Below, you can see a chart representing the Canadian stock index and the Canadian bond index, measured in Canadian dollars. 

Note how Canadian stocks (the red line) have dropped nearly 10 percent during the past 3 months.  On the other hand, both the short term government bond index (blue line) and the broad Canadian bond market index (green line) have risen slightly during the stock market’s drop.



Here’s another example.  This time, we measure apples to apples in USD. 

The blue line is Vanguard’s S&P 500 index of U.S. stocks.  Over the past 3 months, it has fallen 8 percent.  In contrast, Vanguard’s total bond market index has slightly risen.



Let’s compare UK stocks and bonds, measured in British pounds. 

The brown line represents British stocks over the past 3 months.  They have fallen nearly 12 percent.  However, the UK government bond index has risen 3 percent. If you include interest gained from those bonds (the 3 percent gain is just a price gain) then you’re looking at a gain of roughly 3.5 percent overall for UK bonds.



Now let me show you an illusion—and an exception.

Over the past 3 months, the international stock market, measured in USD, has fallen more than 10 percent. 

International bonds (the red line) haven’t dropped.  If, however, you measured this in Euros both indexes would be up.  The U.S. dollar has gained 12.9 percent, compared to the Euro over the past year.  If you are European, but you are measuring these index funds in USD, breathe a sign of relief.  During the past 3 months, you have made (in Euros) about 12 percent on your international bonds and you’ve broken even with your international stock market index.

Chart below, measured in USD



Now let’s look at the past 12 months. 

Measured in U.S. dollars, Vanguard’s first world international index (VEA) has dropped 14.1 percent.  The ishares International Bond market index (ISHG) has fallen 14 percent.

Measure the same results in Euros and you’ll find that both the international stock and bond indexes have dropped just a few percent.

USD’s 12-Month Gain Against The Euro





When stocks drop, bonds usually rise (or they drop much less).  It doesn’t happen always.  But over your lifetime, it will be the general rule—far more often than not.