Asset Allocation

Definition

Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return.

Example

An aggressive investor might have an allocation of 80% stocks and 20% bonds. A conservative investor nearing retirement might have 30% stocks and 70% bonds, prioritizing stability over growth.