| Main Entry: | asset allocation |
| Part of Speech: | n |
| Definition: | a financial strategy for reducing risk in an investment portfolio in order to maximize return |
| Example: | Asset allocation means dividing investment funds among markets to achieve diversification and/or a combination of expected return and risk consistent with the investor's objectives. |
| Etymology: | 1950 |
Asset Allocation
The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio.
Investopedia Commentary
The ideal asset allocation differs based on the risk tolerance of the investor. For example, a young executive might have an asset allocation of 80% equity, 20% fixed income, while a retiree would be more likely to have 80% in fixed income and 20% equities.
Related Links
Five Things To Know About Asset Allocation
Achieving Optimal Asset Allocation
A Guide To Portfolio Construction
Asset Allocation Strategies
The Advantage of Intermarket Analysis
See also: Asset, Diversification, Portfolio, Risk, Strategic Asset Allocation, Tactical Asset Allocation
asset allocation
Should I expect my asset allocation plan to remain largely unchanged throughout my preretirement years, or should I anticipate occasional large-scale restructuring? You should expect only modest shifts in your asset allocation during your working years. Two components combine to create an asset allocation plan: your own financial situation and risk tolerance, coupled with historic and expected investment performance by asset class. Unless one of these components changes dramatically, there should be only modest adjustments in your allocation. The kinds of personal change that can trigger significant allocation changes are marriage, divorce, disability, birth of children, or employment or income change. Major changes in inflation, interest rates, or unforeseen social or political shocks are the type of economic events that could trigger broad allocation shifts.Mark G. Steinberg, President, Trabar Associates, Boston, MA |