Asset allocation is the mix of investment types in your portfolio. Putting everything in one stock is an extreme allocation. Spreading money across equities, fixed income, and cash is a more balanced one. Most long-term returns and many big losses come from this high-level mix, not from picking a single name.
Key takeaways
- Your allocation should match your time horizon and how much loss you can live with.
- Rebalancing means selling winners and buying laggards to restore your target mix.
- Cash is an allocation choice too; holding none can force sales at bad times.
- There is no perfect mix that works for every person or every year.