Asset allocation is the strategy of dividing investments across different asset classes—such as stocks, bonds, and cash—to balance risk and reward. It is one of the most important decisions in building a portfolio.
Why It Matters
Different assets perform differently under various market conditions. Stocks may offer growth, bonds provide stability and income, and cash offers safety and liquidity. The right mix helps investors achieve their goals while managing risk.
Common Strategies
- Conservative: Higher percentage in bonds and cash for safety, with less focus on growth.
- Balanced: A mix of stocks and bonds, balancing growth with stability.
- Aggressive: Mostly stocks, aiming for growth but with higher volatility.
Final Thoughts
Asset allocation is the foundation of smart investing. By diversifying across asset classes, investors can manage risk and stay on track toward their financial goals over the long term.