The distribution of portfolio investments among stocks, bonds, cash, and other asset classes.
Asset allocation is the strategy of dividing your investment portfolio among different asset classes—typically stocks, bonds, cash, and sometimes real estate or commodities—based on your investment goals, risk tolerance, and time horizon. The "right" allocation depends on your age, timeline, and comfort with volatility. A common rule of thumb is to subtract your age from 110 to get your percentage in stocks, with the remainder in bonds. Young investors with long time horizons often hold more stocks for growth; those nearing retirement shift toward bonds for stability. Regular rebalancing helps maintain your target allocation as market movements cause it to drift.