The most important question for any investor isn't "Which stock should I buy?" but "How much should I invest in fixed income and how much in equities?" This decision—asset allocation—determines 90% of your portfolio's long-term returns and risk.
What is fixed income?
Fixed income encompasses debt instruments: bonds, Treasury bills, deposits, and money market funds. The issuer (government, company, bank) promises to return your money plus fixed or variable interest. The risk is that the issuer may default (credit risk) or that interest rates may rise, causing your bond to be worth less in the market (duration risk).
Examples of fixed-income products available in Spain in 2026:
- Interest-bearing accounts: Revolut 2.27%, Openbank 2.02%
- Deposits: EVO Banco 2.85%, Mano Bank 2.94% (Raisin)
- Government debt: Treasury bills ~2.46%, Italian BTPs at 3.59%
- Money market ETF: C3M, XEON (~2.00%, tracks the €STR)
What are equities?
Equities are stocks—shares in companies. There is no guaranteed return: if the company does well, the value goes up and you may receive dividends; if it does poorly, you lose money. The risk is higher, but so is the expected long-term return.
Ways to invest in equities:
- Index funds: MSCI World, S&P 500
- ETFs: IWDA, VWCE (available on Trade Republic, DEGIRO)
- Robo-advisors: Indexa Capital, Finizens
- Individual stocks (not recommended for most investors)
Historical returns: How much has each one yielded?
| Asset | Annualized return (long term) | Volatility | Worst year on record |
|---|---|---|---|
| MSCI World Stocks | ~7–9% real | High (~15%) | -40% (2008–2009) |
| 10-year government bonds (EUR) | ~2–4% nominal | Moderate (~5–8%) | -15% (2022) |
| Treasury bills / Money market | ~0–3% nominal | Very low | ~0% (negative rates 2016–2022) |
| Bank deposits | 0–5% nominal | None | 0% (negative rates) |
How much to allocate to each asset? The 100 minus your age rule
A classic (and rough) rule for asset allocation:
- % in equities = 100 - your age
- Example: 30 years old → 70% equities, 30% fixed income
- Example: 60 years old → 40% equities, 60% fixed income
The logic: the younger you are, the more time you have to recover from market downturns. At 30, you can withstand a 40% stock market drop; at 65, you can’t afford to wait 10 years to recover.
Updated version for greater longevity: 110 or 120 minus your age (people live longer, so they need more growth).
What happens in 2026 with fixed income at 2–3%?
After years of negative rates (2016–2022), fixed income has a positive real return for the first time in a decade. This changes the equation:
- With negative rates, fixed income “punished” investors—any portfolio had to have a high proportion of equities
- With rates at 2–3%, fixed income is a real alternative for the conservative component
- This is especially relevant for investors nearing retirement or with low risk tolerance
However, the historical return on equities (~7–9% real) remains much higher than that of fixed income (~2–4%). For investors with a horizon of over 10 years, overweighting equities remains rationally defensible.
Example of portfolios by profile
| Profile | Equities | Fixed Income/Money Market | Suggested product |
|---|---|---|---|
| Conservative (60+ years) | 20–30% | 70–80% | Treasury bills + deposits + some index funds |
| Moderate (40–55 years old) | 50–60% | 40–50% | Robo-advisor 5/10 + interest-bearing account |
| Aggressive (ages 25–40) | 80–90% | 10–20% | MSCI World Fund + 3–6 months’ expenses in an interest-bearing account |
The Timing Fallacy
The biggest mistake isn’t choosing the wrong allocation—it’s changing the allocation at the wrong time. Investors who sold everything in the stock market during the 2020 (COVID) or 2022 (interest rates) crash and switched to fixed income at the worst possible moment missed out on the recovery.
Define your target allocation, automate contributions (robo-advisor or monthly dollar-cost averaging), and don’t touch the portfolio when the market drops. That’s all most investors need.