Asset Allocation

Asset allocation is the process of deciding how to distribute your investment capital across different asset classes. The three main classes are equities (stocks), fixed income (bonds), and cash equivalents, though some investors also include real estate, commodities, or alternative assets.

The right allocation depends on your investment goals, time horizon, and tolerance for risk. A long investment horizon generally allows for a higher allocation to stocks, which historically deliver higher returns but with greater short-term volatility. As your goals approach, shifting toward bonds and cash can help protect accumulated gains.

Most financial advisors recommend reviewing and rebalancing your allocation at least annually, or whenever market movements cause it to drift significantly from your intended target.