Investors Trade in Stocks for Bonds After Big Gains in 2025

Discipline is key to any successful investment strategy, and thankfully there seems to be plenty of that going around these days.

Risk has been falling out of favor over the past 12 months, with investors pulling money from high-performing equities and reallocating into fixed-income products, like bonds and money market funds, according to recent Vanguard research. Rather than a sign of panic, investors are sticking to portfolio targets and rebalancing after years of strong stock returns. Much of the repositioning is being handled by financial planners, along with automatic rebalancing programs embedded in model portfolios and robo-advisors. Surprisingly, though, Vanguard is also seeing the same behavior among do-it-yourself investors. 

“Some [more experienced traders] have a cynical view of the naive retail investor not doing a good job,” said Fran Kinniry, head of Vanguard’s Investment Advisory Research Center. “Investors are actually setting a portfolio and rebalancing to it. That’s not easy to do because you’re selling your winners and buying your losers.”

Making Moves

It’s no secret that the stock market has been on a tear. In six of the past seven years, equities have returned more than 17%, while companies like Nvidia and Rocket Lab have given new meaning to the term growth stock. However, that performance has left many portfolios overweight in equities and investors looking for other options:

• Roughly, a combined $90 billion has flowed out of domestic and foreign large-growth equities over the past year, according to Vanguard data. 
• Meanwhile, nearly $600 billion has poured into money market taxable funds, with another $106 billion moving into ultrashort bond strategies.

“For most of history, investors would chase returns,” Kinniry told Advisor Upside. “The last five to seven years, we’ve actually been seeing investors have good behavior, meaning they’re selling what’s hot and buying what’s not.”

Where’s Your Fed At?  With President Donald Trump nominating a new Federal Reserve chair, all the political hubbub can create uncertainty around the bond market and rates, which the central bank held steady last week. However, Kinniry advises planners and investors to not let it panic them and says that the positive fixed income trends of 2025 should continue this year. “The most important thing is to tune all that out,” he said. “The Fed only controls the very short end of the curve. The market will set interest rates for non-overnight yields.”