Asset Allocation
Asset allocation is how a portfolio is divided between broad categories such as equities, bonds, and cash. It shapes returns more than the choice of individual holdings.
The split between asset classes determines most of the variation in a portfolio’s returns over time. This is why deciding the mix deserves more attention than picking which particular companies to hold within it.
The right allocation depends on time horizon, tolerance for loss, and purpose. Money needed within a couple of years has no business in volatile assets, however attractive the expected return. Money that can stay invested for decades can absorb falls that would be intolerable over shorter periods.
Allocations drift. When equities rise faster than bonds, an intended 60/40 split quietly becomes 70/30 and the portfolio carries more risk than it was designed for. Rebalancing restores the target, which mechanically means trimming what has done well and adding to what has not.
Diversification is what happens inside and across those buckets; allocation is the decision about how large each bucket should be. The two work together, but the allocation decision comes first and constrains everything after it.
TrustFinance reviews the brokers and platforms used to build multi-asset portfolios, including the range of markets each gives access to.