How to Hedge Your Stock Portfolio Against a Crash
Every common way to protect a stock portfolio, from cash and bonds to puts, collars and trend rules: how each works, what it costs, and how it actually behaved in 2008, 2020 and 2022.
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Do Bonds Still Hedge Stocks After 2022?
For two decades, Treasuries tended to rise when stocks fell. In 2022 they fell together. Here is how the stock‑bond relationship has changed, which bonds helped in which crash, and what a bond hedge costs.
Key takeaways
- Bonds hedge growth scares better than inflation shocks. Long Treasuries (TLT) gained 13.4% in Feb–Mar 2020 as stocks fell 19.4%, then lost 31.2% in 2022 alongside an 18.2% stock loss (Exent’s data, as of Sep 30, 2026).
- The link has tightened: TLT’s correlation with the S&P 500 was 0.19 on monthly returns since mid‑2016, but 0.56 over the last 60 months.
- Short-term bonds and T-bills held steadier in every recent crisis but rise little when stocks crash.
- A 60/40 backtest fell 11.5% in early 2020 vs 19.4% for stocks, but 15.8% in 2022 vs 18.2%.
Do bonds still hedge stocks?
They still can, but it depends on what is driving the selloff. When stocks fall because growth is collapsing and interest rates are expected to drop, high‑quality government bonds have tended to rise. When stocks fall because inflation and interest rates are rising, bonds can fall at the same time, because higher rates lower bond prices too.
2020 was the first kind of crash; 2022 was the second. The Federal Reserve raised its policy rate from near zero, with a first hike to 0.25–0.50% in March 2022, to 4.25–4.50% by December 2022. Bonds had nowhere to hide. Other approaches are compared in how to hedge a portfolio.
How did bonds do in 2008, 2020 and 2022?
| Fund | Feb–Mar 2020 return | 2022 return | Deepest fall, 2007–09 window | Deepest fall, 2025 tariff window |
|---|---|---|---|---|
| S&P 500 (SPY) | −19.4% | −18.2% | −56.5% | −19.0% |
| 20+ year Treasuries (TLT) | +13.4% | −31.2% | −16.7% | −4.9% |
| 7–10 year Treasuries (IEF) | +6.8% | −15.2% | −7.1% | −1.7% |
| US aggregate bonds (AGG) | +1.0% | −13.0% | −14.6% | −1.8% |
| 1–3 year Treasuries (SHY) | n/a | −3.9% | −2.9% | −0.4% |
| 1–3 month T-bills (BIL) | +0.3% | +1.4% | −1.1% | −0.3% |
- S&P 500 (SPY)
- Feb–Mar 2020 return
- −19.4%
- 2022 return
- −18.2%
- Deepest fall, 2007–09 window
- −56.5%
- Deepest fall, 2025 tariff window
- −19.0%
- 20+ year Treasuries (TLT)
- Feb–Mar 2020 return
- +13.4%
- 2022 return
- −31.2%
- Deepest fall, 2007–09 window
- −16.7%
- Deepest fall, 2025 tariff window
- −4.9%
- 7–10 year Treasuries (IEF)
- Feb–Mar 2020 return
- +6.8%
- 2022 return
- −15.2%
- Deepest fall, 2007–09 window
- −7.1%
- Deepest fall, 2025 tariff window
- −1.7%
- US aggregate bonds (AGG)
- Feb–Mar 2020 return
- +1.0%
- 2022 return
- −13.0%
- Deepest fall, 2007–09 window
- −14.6%
- Deepest fall, 2025 tariff window
- −1.8%
- 1–3 year Treasuries (SHY)
- Feb–Mar 2020 return
- n/a
- 2022 return
- −3.9%
- Deepest fall, 2007–09 window
- −2.9%
- Deepest fall, 2025 tariff window
- −0.4%
- 1–3 month T-bills (BIL)
- Feb–Mar 2020 return
- +0.3%
- 2022 return
- +1.4%
- Deepest fall, 2007–09 window
- −1.1%
- Deepest fall, 2025 tariff window
- −0.3%
Exent’s data as of Sep 30, 2026. Feb–Mar 2020 is month‑end to month‑end; “deepest fall” is the largest peak‑to‑trough decline inside each crisis window, which can hide a gain over the full window. Credit is the weak spot: inside the 2007–09 window, investment‑grade corporate bonds (LQD) fell as much as 24.1% and high‑yield bonds (HYG) 41.3%.
How has the stock‑bond correlation changed over time?
It has flipped sign before. Research by John Campbell, Adi Sunderam and Luis Viceira (NBER working paper 14701) found that the covariance between Treasury and stock returns was slightly positive on average from 1953 to 2009, unusually high in the early 1980s, and negative in the 2000s, especially in the 2000–02 and 2007–09 downturns. Their explanation: when inflation is the main worry, bonds and stocks suffer together; when deflation and recession are the worry, bonds act as insurance.
The same data shows the relationship tightening again in recent years:
| Fund | Correlation with S&P 500, monthly since mid-2016 | Correlation, last 60 months |
|---|---|---|
| 20+ year Treasuries (TLT) | 0.19 | 0.56 |
| 7–10 year Treasuries (IEF) | 0.18 | 0.53 |
| US aggregate bonds (AGG) | 0.40 | 0.62 |
| 1–3 month T-bills (BIL) | 0.00 | 0.15 |
A correlation near 1 means two assets move together; near 0, unrelated (see correlation coefficient). In the 16 months since mid‑2016 when the S&P 500 fell more than 4%, TLT averaged −1.9% and AGG −1.2%, against −6.7% for stocks: smaller losses, but losses. Why correlations jump in stress is covered in correlations in crashes.
Which bonds hedge best: long, short or aggregate?
Long‑duration Treasuries give the biggest cushion in a growth scare and the biggest losses in a rate shock. Duration measures how much a bond’s price moves when rates change, so a 20‑year bond fund swings far more than a 2‑year one. That is why TLT rose 13.4% in early 2020 and lost 31.2% in 2022, while short Treasuries barely moved either way.
- Long Treasuries (TLT): strongest crash payoff when rates fall, most exposed to inflation.
- Intermediate Treasuries (IEF): a smaller version of the same trade‑off.
- Aggregate bonds (AGG): include corporate credit, which can fall with stocks in a credit crisis.
- Short Treasuries and T‑bills: steady in every window above, but they do not rise much when stocks crash.
Does a 60/40 portfolio still cushion crashes?
It cushioned the COVID crash and helped less in 2022. In Exent’s hypothetical backtest of 60% SPY and 40% AGG, rebalanced monthly from July 2016 to September 2026:
| Backtest (Jul 2016–Sep 2026) | 60/40 (SPY/AGG) | S&P 500 (SPY) |
|---|---|---|
| Annual return | 9.5% | 15.2% |
| Volatility | 10.1% | 15.2% |
| Maximum drawdown (monthly) | −20.0% | −23.9% |
| Feb–Mar 2020 | −11.5% | −19.4% |
| 2022 | −15.8% | −18.2% |
Hypothetical backtest, past results. Details on the 60/40 strategy page and the debate in is the 60/40 portfolio dead?
What does a bond hedge cost?
Mostly return, and in long bonds, real drawdown risk. Over the 10 years to Sep 30, 2026, TLT returned −3.1% a year and suffered a 47.6% drawdown on month‑end prices, while AGG returned 0.9% a year and the S&P 500 15.2%. Those years included the 2022 rate rises, so they are a harsh period for bonds, not a forecast.
Bonds also pay interest, which shorter funds have passed through at higher rates since 2023. Whether bonds earn their place is a separate question from whether they hedge; see do bonds improve a portfolio’s Sharpe ratio and how to hedge rising interest rates.
What to check in your own bond allocation
- Know your duration: a long Treasury fund and a short one are different hedges.
- Stress test both kinds of crash: a growth scare like 2020 and an inflation shock like 2022.
- Separate Treasuries from credit: corporate and high-yield bonds tend to fall with stocks in a credit crisis.
- Look at your portfolio’s correlations, not the asset class label, and test the mix against 2008, 2020 and 2022.
How to stress test your bonds with Exent
- Upload a screenshot of your holdings, or a CSV, Excel, PDF or Google Sheet; no brokerage login.
- Crash replays run the portfolio through 2008, 2020 and 2022, so you see both a growth scare and a rate shock.
- Correlation clusters show whether your bond funds have been moving with your stocks or against them.
- Change the bond weight or duration in the what-if simulator to see the effect before you trade.
Frequently asked questions
Inflation and fast interest rate rises hit both. Higher rates lowered bond prices and stock valuations at the same time, so the S&P 500 lost 18.2% and long Treasuries 31.2% in Exent’s data.
Historically, high-quality Treasuries have tended to help in growth scares when rates fall. Long Treasuries gained 13.4% in February and March 2020 while the S&P 500 fell 19.4%.
In Exent’s data, it has been positive recently: 0.56 for long Treasuries against the S&P 500 over the last 60 months to Sep 30, 2026, up from 0.19 measured since mid-2016.
Short-term Treasuries and T-bills have had the smallest declines in every recent crisis window, but they also gain little when stocks crash.
Less well than Treasuries. Corporate bonds carry credit risk, which tends to rise in a crisis, so they often fall when stocks fall.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.