Asset Allocation: What Does It Mean?

Asset allocation is how you divide your investment portfolio among different asset classes, like stocks, bonds, cash, and real estate. Each asset class carries a different level of risk and potential return, so the mix you choose shapes how your portfolio behaves. The right allocation depends on your risk tolerance, how long until you need the money, and your financial goals. A common pattern is to hold more stocks when you're young and shift toward bonds and cash as retirement gets closer, which is how target date funds work. Market moves can throw your mix off balance over time, so rebalancing periodically keeps your allocation on track.