Asset allocation is one of the most important investment decisions you'll make. It determines your portfolio's risk and return.
What is Asset Allocation?
Asset allocation is dividing your investments among different asset classes like stocks, bonds, and cash.
Major Asset Classes
- Stocks: High growth potential, higher risk
- Bonds: Stable income, lower risk
- Cash: Safe, liquid, low return
- Real Estate: Income + appreciation
- Commodities: Inflation hedge
Sample Allocations by Age
Age 20-30: 90% stocks, 10% bonds
Age 40-50: 70% stocks, 30% bonds
Age 60+: 40% stocks, 60% bonds
Factors to Consider
- Risk tolerance
- Time horizon
- Financial goals
- Current financial situation
Rebalancing
Review your allocation yearly and rebalance to maintain your target percentages.