Asset Allocation Definition

Learn the definition of asset allocation and other ETF terminology from the etf.com glossary.

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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Learn more about Asset Allocation

Asset allocation refers to the distribution of an investment portfolio across different asset classes, such as stocks, bonds, and commodities. The goal of asset allocation is to balance risk and return by investing in a mix of assets that has the potential to meet the investor's financial goals while minimizing overall portfolio risk. Asset allocation decisions are typically based on an investor's risk tolerance, time horizon, and investment objectives. For instance, a young investor with a long-term investment horizon might allocate a larger portion of their portfolio to stocks, which have the potential for higher returns but also carry more risk. Conversely, an investor nearing retirement might allocate a larger portion of their portfolio to bonds, which offer lower returns but provide more stability.

Related Terms

Assets Under Management (AUM), Net Asset Value (NAV), Robo-Advisor

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.