What is Asset allocation?
Asset allocation is how a portfolio is split between broad types of investment, mainly stocks, bonds and cash. A mix might be written as 60/40, meaning 60% stocks and 40% bonds. The split depends on how long the money can stay invested and how much decline its owner can live with.
Why Asset allocation matters
The mix sets how far a portfolio is likely to fall in a bad year far more than the choice of individual holdings does.
Related terms
Lessons that use this term
- Asset allocation: choosing your mix of stocks, bonds and cash
- Portfolio rebalancing: how and when to reset your mix
- Diversification in plain language