Asset Allocation
How your portfolio is divided among stocks, bonds, and other asset classes — the main driver of risk and return.
Asset allocation is the mix of asset classes in your portfolio — typically stocks, bonds, and cash, sometimes real estate or others. It's widely considered the single biggest determinant of your portfolio's risk and long-term return, more than individual security selection.
The right allocation depends on your time horizon and tolerance for volatility. More stocks mean higher expected returns and bigger swings; more bonds mean stability and lower growth. Many investors shift toward bonds as they approach and enter retirement to reduce sequence of returns risk, a path sometimes called a glide path.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.