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