Asset Allocation
The single biggest decision in investing — and it's not which stock to pick.
Asset allocation is the mix of stocks, bonds, cash and other assets in your portfolio. Studies repeatedly show this mix explains most of your long-run return — far more than which specific funds you picked.
Classic rules of thumb
- "100 minus your age" in stocks. At 30, hold 70% stocks. At 60, hold 40%. Simple but workable.
- Three-bucket portfolio. Stocks for growth, bonds for stability, cash for opportunity.
- Rebalance annually. If stocks soar and become 80% of your portfolio when you wanted 60%, sell some and buy bonds.
Why diversification works
Different asset classes don't move in lockstep. Bonds often rise when stocks fall. Cash earns zero but never loses. Holding a mix smooths your returns and reduces the temptation to bail at the worst moment.