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What Is Asset Allocation?

Asset allocation is the decision of how to divide your overall assets among different asset classes, such as stocks, bonds, cash, and real estate.

The concept

Investment outcomes are often said to be driven more by the allocation among asset classes such as stocks, bonds, and cash — that is, asset allocation — than by the selection of individual securities. Holding multiple asset classes that move differently from one another is one of the basic ideas behind diversification (see related page).

How to think about setting it

There is no single correct asset allocation; the appropriate mix varies with factors such as age, income, investment goals, and risk tolerance (see related page). Because the actual allocation shifts over time, rebalancing (see related page) may be considered as needed.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

How should I decide on an asset allocation?
The appropriate allocation depends on factors such as your age, risk tolerance (see related page), and investment goals and time horizon. It is important to consider what fits your own situation.
Once I set an asset allocation, do I need to leave it unchanged?
As asset prices move, the actual allocation gradually drifts away from the original target, so periodic review (rebalancing, see related page) may be needed.

Related terms