What are Benjamin Graham's recommended minimum and maximum allocation percentages for stocks and bonds?

Certainly, I'd be happy to chat about this topic as a fellow investing enthusiast.

Graham's advice is arguably one of the core, most practical rules in "The Intelligent Investor," especially well-suited for us ordinary investors.

The straightforward answer is:

• The minimum allocation to stocks: 25%
• The maximum allocation to stocks: 75%

The remaining portion should naturally be allocated to bonds (or cash equivalents). Thus, the bond allocation will fluctuate between 25% and 75%.

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Why this ratio? How to understand it?

Think of this rule as "bumpers for investment discipline," preventing you from making extreme decisions driven by emotion.

1. Default Setting: 50/50

First, Graham suggested starting with the simplest allocation: 50% stocks + 50% bonds.

This resembles the initial state of a balanced scale. One half seeks long-term growth (stocks), while the other half provides stability and safety (bonds). For investors unsure where to begin, this is a simple, worry-free, and prudent starting point.

2. The Role of the "Bumpers": Never Below 25%, Never Above 75%

Markets are inherently volatile, cycling through bull and bear markets. Graham's ratio is a strategy to help you stay rational amidst this volatility.

• Why shouldn't stocks go below 25%?

  • This ensures you "always stay in the game." No matter how bad the market appears or how gloomy the economic outlook, as a long-term investor, you should believe that quality companies' value will eventually be recognized. Maintaining at least a 25% allocation to stocks means you won't completely miss out on potential market rebounds and the long-term benefits of economic growth due to momentary panic.

• Why shouldn't stocks exceed 75%?

  • This prevents you from "getting carried away at the height of euphoria." When the market is booming and everyone is talking about stocks (often near a bull market peak), human greed is easily stoked, tempting you to put all your money in. The 75% cap acts as a forced brake, reminding you to "quit while you're ahead" by keeping at least 25% in bonds as a safety cushion against potential market pullbacks.

The Core Essence: When to Adjust?

Understanding the boundaries raises the crucial question: When should I lean towards 25%, and when towards 75%?

The essence of Graham's strategy is "counter-cyclical action":

• When the market is "expensive" (e.g., late bull market, stocks generally overvalued): You should become more "conservative," proactively selling some stocks and increasing bond allocation, moving your portfolio closer to 25% stocks / 75% bonds. This locks in profits and reduces risk.

• When the market is "cheap" (e.g., bear market, stocks significantly down, widespread fear): This is when the "intelligent investor" should act. You should become more "aggressive," using your bonds/cash to buy those unfairly punished, cheap, high-quality stocks, shifting your allocation towards 75% stocks / 25% bonds.

In Summary

Graham's advice isn't just about simple numbers; it embodies a profound investment philosophy:

It compels you to be cautious when others are greedy and to perceive opportunity when others are fearful.

By adhering to such a mechanical discipline, ordinary investors like us can overcome the human tendency towards "chasing gains and fleeing losses," allowing us to navigate the long investing marathon more steadily and successfully.