If Your Advisor Said to Add Bonds at 65, They Were Right (in 1995). Here’s What That Advice Should Sound Like Today.

Looking back, going long on fixed-income duration in 1995 was unquestionably the right call. Duration measures a bond portfolio’s sensitivity to interest rate changes: the longer the duration, the more a bond’s price moves when rates shift.

Back then, interest rates across developed economies had entered a long secular decline. When rates fall, bond prices rise because fixed coupon payments become more attractive relative to newly issued debt. In that environment, long-duration bonds delivered powerful capital appreciation on top of their income.

That dynamic fueled one of history’s greatest bond bull markets. Investors like Bill Gross earned legendary status not by passively clipping coupons, but by actively trading duration, credit spreads, and interest rate cycles in what became known as the “total return” approach to fixed income. Gross built his reputation at PIMCO managing what would become the world’s largest bond fund, applying strategies that consistently beat benchmarks for decades.

Then 2022 shattered that framework. As inflation surged, central banks worldwide hiked rates aggressively to combat it. Bonds suffered their worst year since the Volcker era of the early 1980s, with the Bloomberg U.S. Aggregate Bond Index down 13%. More jarring still, the negative correlation between stocks and bonds disappeared. The classic 60/40 portfolio fell nearly 18%, failing to provide the diversification retirees had counted on.

The story didn’t end there. The 60/40 portfolio roared back with a 17.2% return in 2023, well above its historical median of 7.8%. Performance remained strong in 2024 and 2025, each delivering roughly 15% returns. Perhaps more importantly, the stock-bond correlation began normalizing. After peaking at 0.80 in mid-2024, it dropped to just 0.16 by late 2025, suggesting bonds are regaining their traditional role as portfolio stabilizers.

Still, bonds clearly have a place. Municipal bonds remain particularly attractive for their federal and sometimes state tax advantages. A simple pairing like the Vanguard Total Stock Market ETF (NYSEARCA:VTI) alongside the Vanguard Total Bond Market ETF (NASDAQ:BND) provides tremendous diversification at an ultra-low blended expense ratio of 0.03%.

But investors need to recognize that a higher-for-longer rate regime means stock-bond correlations can rise again. If you’re 65 today and looking to lower portfolio risk, blindly adding bonds the way advisors recommended in the 1990s may not be the answer. Instead, think differently about risk management altogether.

Why Options Create More Defined Protection

Correlation measures how assets move relative to one another. A correlation of negative one means two assets move in perfect opposition; positive one means they move together. The problem is correlations are unstable. They can shift dramatically during inflationary or stressed environments, as investors discovered in 2022.

Options work differently. They rely less on historical correlations and more on explicitly defined payoff structures. Put options give investors the right (but not the obligation) to sell an underlying asset at a predetermined strike price. They function as portfolio insurance.

The cost is that insurance isn’t free. Put options lose value over time through what traders call theta decay. If the market doesn’t decline, those puts gradually expire worthless, and the premium paid becomes a drag on returns.

Investors can offset that cost by selling covered calls. Combining a protective put with a covered call creates a collar strategy. The covered call helps finance the downside protection while simultaneously capping upside gains within a predefined range.

You exchange some upside potential for more controlled downside risk. You can implement this manually, but for investors who don’t want to trade options directly, ETFs now automate versions of this strategy.

The Simplify ETF Solution

One ETF that could serve as a viable alternative or complement to a traditional 60/40 portfolio is the Simplify Hedged Equity ETF (NYSEARCA:HEQT). Most of HEQT’s portfolio is invested in an iShares ETF tracking the S&P 500. Layered on top is a put-spread collar strategy.

First, HEQT buys a 5% out-of-the-money put option, establishing downside protection if the market falls. To partially finance that hedge, the ETF sells a 20% out-of-the-money put option. That generates premium income but means investors begin participating in downside losses again if declines exceed 20%. In practice, this creates a protection band where the ETF is hedged against losses between roughly 5% and 20%.

Selling the lower put alone doesn’t fully pay for the protective put. So HEQT also sells covered calls, with strike prices varying based on market conditions. This pays for the protection completely but caps upside appreciation potential.

Importantly, these option positions are laddered across three sequential monthly expirations. That means unlike many traditional buffer ETFs, HEQT doesn’t depend heavily on when you happen to buy the ETF relative to a specific outcome period. Instead, it functions as an evergreen hedging solution with ongoing downside protection and upside caps.

Looking at performance data from HEQT’s inception in November 2021 through early 2026, the fund has delivered annualized returns in the high single digits. More importantly, HEQT dramatically reduced downside volatility during the 2022 bear market compared to a traditional 60/40 mix using VTI and BND.

While a 60/40 portfolio suffered a maximum drawdown exceeding 20% in 2022, HEQT’s worst drawdown was considerably smaller. Annualized volatility also fell significantly compared to the traditional stock-bond mix. Not surprisingly, HEQT’s Sharpe ratio (a measure of risk-adjusted returns) proved substantially stronger.

One of the most appealing aspects of HEQT is its pricing. At a 0.43% net expense ratio, it costs considerably more than a passive stock-and-bond portfolio. But considering that investors receive an actively managed hedging overlay with continuously laddered options protection, the pricing is reasonable relative to its peer group and especially compared to legacy hedged mutual funds.

The lesson from 2022 through 2026 is clear: traditional diversification can still work, as the 60/40 portfolio’s strong recovery demonstrates. But when inflation and rates remain elevated, investors should consider strategies that offer more explicit downside controls rather than relying solely on historical correlation patterns.

Editor’s note: This article was updated to reflect the 60/40 portfolio’s strong recovery in 2023 through 2025 (with returns of 17.2%, 15%, and 15% respectively), the normalization of stock-bond correlation from a peak of 0.80 in mid-2024 to 0.16 by late 2025, and current expense ratio data for VTI, BND, and HEQT.