Asset Allocation

Definition

Asset allocation means deciding what percentage of your portfolio goes into different asset classes, usually stocks, bonds, and cash.

Why it matters

Your allocation is one of the biggest drivers of both growth potential and volatility. A stock-heavy mix may grow faster over time but can swing more. A bond-heavy mix is often steadier but may grow more slowly.

Common factors used to choose an allocation

• Time horizon (when you need the money)
• Risk tolerance (how much volatility you can handle)
• Income needs and emergency savings
• Personal goals (retirement, home down payment, education)

Quick example

A long-term investor might choose 80% stocks and 20% bonds. Someone nearing retirement might shift toward 50% stocks and 50% bonds to reduce downside risk.