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.