The process of dividing your investment portfolio among different asset classes, such as stocks, bonds, and cash. Asset allocation is typically based on your goals, time horizon, and risk tolerance. The right allocation for one person may not be appropriate for another.
A 25-year-old with decades until retirement might decide on an asset allocation of 90 percent stocks and 10 percent bonds, accepting higher short-term volatility for growth potential. A 70-year-old close to retirement might choose 40 percent stocks and 60 percent bonds, prioritizing stability over growth.
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