The process of deciding how to distribute capital among investments or projects.
Capital allocation is the strategic process of distributing financial resources among different investments, projects, or business units to maximize returns. For individuals, it involves deciding what percentage to invest in stocks, bonds, real estate, etc. For companies, it involves deciding between dividend payments, debt reduction, acquisitions, and reinvestment. Effective capital allocation requires considering risk, return, time horizon, and strategic goals. Warren Buffett emphasizes capital allocation as central to investing success.