What Is Asset Allocation? Meaning & Example
Definition
Asset allocation is how you divide your portfolio among asset classes such as stocks, bonds and cash. It is one of the biggest drivers of both risk and long-term returns.
Related terms
Diversification means spreading money across different investments so one poor performer does not sink your whole portfolio. It reduces risk but cannot eliminate it.
RebalancingRebalancing is adjusting your portfolio back to its target mix after market moves cause it to drift. It keeps risk in line with your plan.
Risk ToleranceRisk tolerance is how much investment loss and volatility you are willing and able to accept. It depends on your finances, goals and emotional comfort.
What is Asset Allocation?
Asset allocation is how you divide your portfolio among asset classes such as stocks, bonds and cash. It is one of the biggest drivers of both risk and long-term returns.
Can you give an example of Asset Allocation?
A 70% stocks, 25% bonds and 5% cash mix is an example of an asset allocation.