Asset allocation is one of the most important parts of building an investment portfolio. It’s all about how you divide your money among different types of investments, like stocks, bonds, and cash. The right mix depends on your goals, your age, and how much risk you’re willing to take.
Think of your portfolio like a pizza. Each slice represents a different kind of investment. Some slices might be bigger, like stocks, if you’re young and have a long time before retirement. Other slices might be smaller, like bonds or cash, especially if you’re closer to needing your money and want to play it safe.
The reason asset allocation matters is because different assets perform differently depending on the market. When stocks are down, bonds might go up, and vice versa. By spreading your money across different assets, you reduce the chances of losing everything if one part of the market crashes. It’s a way of balancing risk and reward.
Over time, your ideal asset allocation might change. As you get older, you may shift toward safer investments. That’s why many people revisit their allocation every few years to make sure it still fits their situation. A good asset allocation strategy helps you stay invested with confidence through the ups and downs of the market.
