How to Choose Between Stocks and Bonds Based on Your 'Freedom Number'

Investing can feel like stepping into a maze. Stocks, bonds, ETFs, mutual funds—there’s no shortage of options, and the sheer volume of advice out there can leave even the most confident person second-guessing their decisions. But what if you could simplify the process? What if, instead of chasing trends or trying to time the market, you focused on one key number: your “Freedom Number”?

Your Freedom Number is the amount of money you need to live the life you want—comfortably, sustainably, and without financial stress. It’s a personal benchmark that helps you align your investments with your goals, risk tolerance, and timeline. And when you use it as a guide, choosing between stocks and bonds becomes less about guesswork and more about strategy.

Let’s break down how to calculate your Freedom Number, how it influences your investment choices, and how to build a portfolio that works for you—without the anxiety.

What Is a Freedom Number?

Your Freedom Number is essentially your financial independence target. It’s the amount of money you need to cover your living expenses, achieve your goals, and maintain your desired lifestyle without relying on a paycheck.

For some, this might mean having enough to retire early. For others, it could mean building a safety net that allows for career flexibility or pursuing a passion project. The beauty of the Freedom Number is that it’s entirely personal—it’s about what freedom means to you.

According to a 2025 survey by Schwab, the average American believes they need $839,000 to be financially comfortable. While this number varies widely based on individual circumstances, it highlights the importance of having a clear financial target.

How to Calculate Your Freedom Number

Calculating your Freedom Number doesn’t have to be complicated. Here’s a simple formula to get started:

1. Determine Your Annual Expenses: Add up your essential and discretionary spending. Be honest about what you need to maintain your desired lifestyle.
2. Account for Inflation: Multiply your annual expenses by 1.03 (or 3%) to account for inflation.
3. Choose a Withdrawal Rate: A common rule of thumb is the 4% rule, which suggests you can withdraw 4% of your portfolio annually in retirement without running out of money. Divide your annual expenses by 0.04 to calculate your target portfolio size.

For example, if your annual expenses are $50,000, your Freedom Number would be $1.25 million ($50,000 ÷ 0.04).

Stocks vs. Bonds: The Basics

Before we dive into how your Freedom Number influences your investment choices, let’s quickly review the basics of stocks and bonds.

Stocks

Stocks represent ownership in a company. When you buy a stock, you’re essentially buying a small piece of that company. Stocks have the potential for high returns, but they also come with higher risk. Their value can fluctuate significantly based on market conditions, company performance, and economic factors.

Bonds

Bonds are essentially loans you give to a company or government. In return, they pay you interest over a set period of time. Bonds are generally considered lower-risk investments compared to stocks, but they also offer lower returns. They’re often used to provide stability and income in a portfolio.

Historically, stocks have delivered an average annual return of about 10%, while bonds have averaged around 4%—though past performance doesn’t guarantee future results.

How Your Freedom Number Guides Your Investment Choices

Your Freedom Number isn’t just a target—it’s a tool for making informed investment decisions. Here’s how it can help you choose between stocks and bonds:

1. Consider Your Timeline

The closer you are to reaching your Freedom Number, the more conservative your investments should be. Stocks are great for long-term growth, but their volatility can be risky if you need to access your money in the near future. Bonds, on the other hand, provide stability and are better suited for short-term goals.

If you’re 30 years away from retirement, you might allocate 80% of your portfolio to stocks and 20% to bonds. If you’re five years away, you might shift to a 50/50 split to protect your savings from market downturns.

2. Assess Your Risk Tolerance

Your Freedom Number should reflect not only your financial goals but also your comfort level with risk. Stocks can offer higher returns, but they come with the potential for losses. Bonds are less volatile, but they may not grow your wealth as quickly.

Pro Tip: If market fluctuations make you lose sleep, consider a more conservative allocation, even if it means reaching your Freedom Number a little later.

3. Balance Growth and Stability

Reaching your Freedom Number requires a balance of growth (to build wealth) and stability (to protect it). Stocks provide the growth, while bonds offer the stability. The right mix depends on your timeline, risk tolerance, and financial goals.

Building a Portfolio Around Your Freedom Number

Once you’ve calculated your Freedom Number and assessed your risk tolerance, it’s time to build a portfolio that aligns with your goals. Here’s a step-by-step guide:

1. Set Your Asset Allocation

Decide what percentage of your portfolio will be allocated to stocks and bonds. A common rule of thumb is to subtract your age from 100 to determine your stock allocation. For example, if you’re 40, you might allocate 60% to stocks and 40% to bonds.

2. Diversify Your Investments

Within each asset class, diversify to reduce risk. For stocks, consider a mix of large-cap, mid-cap, and small-cap companies, as well as international stocks. For bonds, include a mix of government, corporate, and municipal bonds.

3. Rebalance Regularly

Over time, market fluctuations can cause your portfolio to drift from your target allocation. Rebalancing ensures you stay on track by selling assets that have grown and buying those that have lagged.

4. Keep Costs Low

High fees can eat into your returns over time. Look for low-cost index funds or ETFs to minimize expenses.

5. Stay the Course

Investing is a long-term game. Avoid the temptation to make emotional decisions based on short-term market movements. Stick to your plan and trust the process.

Wealth Insight

The best investment strategy is one that aligns with your goals, reflects your risk tolerance, and gives you the confidence to stay the course—no matter what the market does.

Investing with Confidence

Investing doesn’t have to be overwhelming. By focusing on your Freedom Number, you can cut through the noise, make informed decisions, and build a portfolio that supports your goals.

Remember, the goal isn’t to chase the highest returns or follow the latest trends—it’s to create a plan that works for you. Whether you’re just starting out or fine-tuning your strategy, your Freedom Number is your compass, guiding you toward financial independence and peace of mind.

So take a deep breath, crunch the numbers, and start building a portfolio that reflects your vision for the future. You’ve got this.