Asset allocation
Also called: portfolio mix, equity-debt ratio, glide path
The split of a portfolio between asset classes such as equity, fixed income and cash, the main driver of how much it swings.
More equity raises expected long-term return and the size of falls; more fixed income steadies the portfolio but lowers expected growth. Allocation is best set goal by goal, from the time horizon and the investor's capacity and tolerance for risk, and shifted towards safety as a goal approaches.
Example
In a year when shares fall 35% and fixed income rises 6%, a 50:50 portfolio falls about 14.5%.
Learn more in these lessons
- Asset allocationHow should you split your money between shares, fixed income and cash?
- Equity and fixed incomeHow do bonds, deposits and debt funds differ from shares, and can they lose money?
- Portfolio rebalancingWhat is rebalancing, and how often should you do it?
- Writing an investment policy statementWhy write an investment policy statement, and what goes in it?
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