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Bull Market Lulls Investors, Advisors Urge Caution

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  Published in Stocks and Investing on Thursday, February 5th 2026 at 12:46 GMT by MarketWatch
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Thursday, February 5th, 2026 - For over a decade, investors have enjoyed a remarkably consistent bull market. This prolonged period of gains has lulled many into a false sense of security, particularly those nearing retirement. While the allure of continued stock market success is strong, financial advisors are increasingly urging a re-evaluation of asset allocation - and a significant increase in bond holdings. The current market environment, characterized by historically low interest rates and relatively muted volatility, creates an illusion of safety that belies underlying risks.

The Deceptive Calm

The prevailing sentiment among some investors is that stocks are the only game in town. Years of outperformance have led to a belief that equities will perpetually deliver positive returns. However, financial history is replete with examples demonstrating that extended periods of calm are invariably followed by periods of turbulence. The current low-volatility environment doesn't signify the absence of risk; it often masks it. Essentially, the lack of significant downturns has allowed risk to accumulate within stock portfolios, making them potentially more vulnerable than they appear.

This is particularly concerning for those on the cusp of retirement. Unlike investors with decades to recover from potential losses, retirees have a limited time horizon to rebuild their portfolios. A substantial market correction could severely impact their retirement income and lifestyle.

The Resurgence of Bonds

For years, bonds were often overlooked due to their relatively low yields in a low-interest rate environment. Investors seeking higher returns flocked to stocks, pushing bond yields down. However, the role of bonds extends far beyond simple yield generation. Bonds offer crucial diversification benefits, providing stability and acting as a counterbalance to stock market volatility. As interest rates begin to normalize (and some analysts predict continued modest increases throughout 2026 and 2027), bond yields are becoming more attractive, enhancing their appeal as a safe haven asset.

Currently, the 10-year Treasury yield sits at 4.2%, a significant improvement from the near-zero rates seen just a few years ago. While not historically high, this level provides a reasonable income stream and a degree of protection against potential economic headwinds. Furthermore, high-quality corporate bonds offer a slight premium over Treasuries, potentially boosting overall portfolio returns.

Understanding Your Risk Tolerance

As retirement nears, a frank assessment of your risk tolerance is paramount. Consider this: could you comfortably withstand a 20%, 30%, or even 40% decline in your portfolio value without drastically altering your retirement plans? If the answer is no, it's a clear signal that a more conservative asset allocation is warranted.

Shifting a portion of your portfolio from stocks to bonds isn't about avoiding risk entirely; it's about managing it. It's about preserving capital and ensuring a steady stream of income to fund your retirement lifestyle.

The Power of Rebalancing

Maintaining a desired asset allocation isn't a one-time event; it requires ongoing attention. Rebalancing - the process of periodically adjusting your portfolio to maintain your target asset mix - is a critical component of long-term investment success.

If stocks have significantly outperformed bonds, rebalancing involves selling some of your stock holdings and using the proceeds to purchase bonds. This not only brings your portfolio back into alignment with your target allocation but also locks in profits from your stock investments. Conversely, if bonds have outperformed stocks, you would sell some bonds and buy stocks.

Resist the Urge to Time the Market

Trying to predict market peaks and troughs is a fool's errand. Numerous studies have shown that market timing consistently underperforms a simple buy-and-hold strategy. Instead of attempting to time the market, focus on building a well-diversified portfolio that reflects your long-term financial goals and risk tolerance.

Bonds are not merely a defensive asset to be considered during times of uncertainty; they are a vital component of a comprehensive retirement plan, offering stability, income, and protection against unforeseen market events. Ignoring their importance could prove to be a costly mistake as you approach your golden years. Remember, preserving your wealth is just as important as growing it, especially when retirement is within reach.