What Is Asset Allocation?
Asset allocation is how you split your money between types of investments, mainly stocks, bonds and cash.
Why it matters so much
Your mix of stocks and bonds decides most of how much your portfolio grows and how much it swings. Stocks grow more but drop harder. Bonds are steadier. Cash is safest but barely grows.
Sample allocations
- Growth: 90% stocks, 10% bonds. For people with decades ahead.
- Balanced: 60% stocks, 40% bonds. A classic middle path.
- Careful: 30% stocks, 70% bonds and cash. For people who need the money soon.
How to choose yours
Ask when you need the money and how you would feel watching it drop 30%. That is your risk tolerance. A rough old rule says: hold your age in bonds. Many people today hold more stocks than that.
Keep it on track
Markets move your mix over time. Resetting it once or twice a year is called rebalancing.