Asset Allocation Definition

Asset allocation is the process of dividing funds among different types of investments, such as stocks, bonds, money markets, and real estate properties. A person’s asset allocation should match their risk tolerance such that market fluctuations in a given investment vehicle could not become catastrophic to their personal finances.

Conventional wisdom dictates that the further one is from retirement (e.g. the younger one is) the more their asset allocation can tolerate higher yield / higher risk investments. Conversely, an individual close to retirement should have an asset allocation favoring lower risk / lower yield investments. Of course, only you can make the determination of what is best for your personal goals and needs.