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Asset Allocation

The mix of different asset classes in a portfolio.

Asset allocation is the strategy of dividing investments among different asset categories—stocks, bonds, cash, real estate, and alternatives. Research shows that asset allocation is the primary driver of long-term portfolio returns, more important than individual security selection. The right allocation depends on your goals, time horizon, and risk tolerance, and should evolve as your circumstances change.

Example

A business owner uses a 70/20/10 asset allocation: 70% equities for growth, 20% bonds for stability, and 10% real estate for diversification and inflation protection.

Why It Matters for Your Business

Asset allocation is the single most important investment decision you'll make—it determines roughly 90% of your portfolio's long-term performance variability.

Practical Tips

  • •Use a target-date fund if you prefer automated asset allocation that adjusts with age.
  • •Review and adjust your allocation after major life changes like selling a business or receiving an inheritance.

Related Terms

Diversification

More Investing Terms

Dividend

A distribution of profits to shareholders.

Stock

A share of ownership in a company.

Bond

A debt security where the issuer owes the holder payment.

Mutual Fund

An investment vehicle pooling money from many investors.

ETF

Exchange-Traded Fund - a tradable investment fund.

Related Financial Guides & Resources

Accounting 101 GuideFinancial Statements GuideTax Deductions GuideFinancial Reports Feature

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