The strategy of dividing an investment portfolio among different asset classes such as stocks, bonds, commodities, and cash to balance risk and reward based on an investor's goals, risk tolerance, and time horizon. Proper asset allocation is widely considered one of the most important decisions an investor can make, as it accounts for a large portion of portfolio performance variability. Rebalancing periodically ensures the portfolio stays aligned with the original allocation targets.
Example
“My financial advisor recommended a 60/30/10 asset allocation split between equities, fixed income, and crypto.”