Why do bonds and stocks sometimes fall at the same time, like they did in 2022?

The usual expectation is that bonds cushion stock losses, and often they do. But 2022 was a painful reminder that the stock-bond relationship isn't guaranteed. That year, rapidly rising interest rates hammered bond prices (remember, bond prices fall when rates rise) at the same time that higher rates and inflation fears pressured stocks. Both fell together, an unusual and uncomfortable outcome.

The lesson isn't that bonds are useless, over most history they've still reduced portfolio volatility and provided ballast in recessions. It's that no diversification is perfect, and correlations can shift with the economic backdrop. High inflation environments are especially prone to stocks and bonds moving together. This is one reason to hold some genuine cash (which doesn't lose nominal value) and, if inflation worries you, consider TIPS or I-bonds, which are designed to keep pace with rising prices.