Asset Allocation
What is Asset Allocation?
How a portfolio is split across asset classes such as stocks, bonds, and cash.
Understanding Asset Allocation
Asset allocation is the mix of asset classes in a portfolio. Each class carries a different level of risk and expected return, so the mix sets most of a portfolio's long-run behavior.
Investors choose a mix based on their goals, time horizon, and tolerance for losses, then rebalance to keep it on target as prices move.
Example
A 60/40 portfolio holds 60% in stocks and 40% in bonds. If stocks rally and grow to 70% of the portfolio, the investor sells some stocks and buys bonds to return to 60/40.
FAQ
Is there one correct asset allocation?
No. The right mix depends on your goals, how long you will invest, and how much short-term loss you can accept.
How often should I review my allocation?
Many investors review once a year, or when their goals or circumstances change.