Key insights
- Rising bond yields above 5% present a competitive alternative to equities, whose valuations are near record highs and above historical averages. The equity risk premium has diminished, suggesting stocks may be overvalued relative to their risk. While a complete portfolio overhaul is not advised, the current environment allows for tactical shifts, as safer assets now offer meaningful income, potentially slowing the historical migration of assets into stocks.
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The investing playbook can seem simple: Buy the stock market and reap the rewards. But with some long-term Treasurys yielding above 5%, many are now wondering if their strategy should change.1 The S&P 500 is trading near record highs, making stocks look stretched: The S&P 500 is trading around 22 times forward earnings, above its 10-year average. Treasurys, high-yield savings accounts, and CDs are paying yields more competitive with long-term equity returns.23 Financial advisers warn against overhauling your long-term portfolio mix, but say there's room for tactical moves.
For a decade after the financial crisis, bonds and savings accounts paid so little that holding cash or bonds meant losing much of their yields to inflation. That's no longer true. With 30-year Treasury yields above 5% for the first time since 2007 and some high-yield savings accounts and CDs paying around 4%, the safer parts of a portfolio can now generate meaningful income on their own.
For most of the 2010s, bonds paid comparatively little. Consequently, portfolios migrated more into stocks: the percentage of household and nonprofit assets in equities rose from about 27% in 2012 to a record 47% as of the fourth quarter of 2025.4 Today's higher yields, including those on Treasury bonds and high-yield savings accounts, could slow that rise. While historically, stocks have paid investors a premium over bonds to compensate for their extra risk (called the equity risk premium), that premium has nearly disappeared. That hasn't happened in decades.5
That doesn’t mean you should dump your stocks, but it does mean many have better choices apart from equities. With prices above historical averages, investors are arguably paying too much for future growth, and, for the first time in years, there's a risk-free alternative paying nearly 5% competing for your money.16 How you should respond largely depends on your age and whether you’re still building wealth or starting to spend it.
If you’re years away from retirement and still adding to your portfolio, you’re likely heavily invested in stocks. People in this situation typically see more fluctuations in the value of their portfolios, and while stocks have risen steadily for some time, stubborn inflation has increased some traders' expectations that the Federal Reserve could raise interest rates this year, which could pressure stocks.
Prince Dykes, founder and chief investment officer of Royal Financial Investment Group, said younger investors should treat stock market volatility as a chance to buy in, not a reason to make sudden shifts. “When rising rates push equity prices down, that’s not a crisis," he said. "It’s an opportunity to buy more at better prices."
If you want to be more tactical, Dykes suggests splitting future contributions between equities and an easily accessible high-yield savings account. Then, when the stock market drops, you can deploy that cash into stocks at lower prices.
If you’re retired or nearly retired, rising rates can be a good thing. You're now drawing down what you spent decades building, and for the first time since before the financial crisis, you can earn 4% or more on cash without taking equity risk.
Dykes recommends a two-bucket approach. One can hold five years of living expenses in high-yield savings accounts or short-term CDs. The other is kept in equities for long-term growth. If markets fall, you wait it out while the other bucket covers expenses.
Whatever your age, financial planners generally agree on one thing: Don’t blow up your whole strategy because of where bond rates are. Small adjustments can be smart, but wholesale changes driven by market conditions should be avoided. For the bond portion of your portfolio, Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners, advises investing in individual bonds, not bond funds, to lock in the yield. She recommends laddering maturities—buying bonds with staggered due dates—"so that you always have something maturing to meet cash flow needs." Otherwise, she said, stick to the original plan.
"Changing allocations based on market conditions is trying to time the market," McClanahan said. "To me, that is a fool's game. Allocation decisions should be driven by your goals and your ability to take on risk."
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