Asset Allocation
How you divide your portfolio across asset classes — stocks, bonds, cash, alternatives — to balance risk and return.
Asset allocation is the strategic decision of how to distribute capital across different asset classes. It is the primary driver of long-term portfolio risk and return — more impactful than individual security selection for most investors.
Classic frameworks like the "60/40 portfolio" split 60% equities and 40% bonds, balancing growth potential against downside protection. Tactical asset allocation shifts these weights based on market conditions; strategic allocation holds them constant.
The right allocation depends on time horizon, risk tolerance, and objectives. Longer time horizons generally support higher equity allocations because there is more time to recover from drawdowns.