Asset allocation
How your money is split between different types of investment, such as shares and bonds.
The split between broad categories — shares, bonds, cash, property — rather than the choice of specific holdings within them.
It matters more than most people expect, and more than which particular fund you choose. A portfolio that is mostly shares behaves very differently from one that is mostly bonds, regardless of what is inside either.
The main input is time. Money needed soon belongs in stable things; money not needed for decades can tolerate movement. Age is a rough proxy for this, but the real variable is when you will need it.
Simple allocations, held consistently, tend to beat elaborate ones adjusted frequently.
Words on this page
- Share — A small piece of ownership in a company, including a claim on its profits.
- Bond — A loan to a government or company that pays interest and returns the original amount at a set date.
- Portfolio — Everything you own as investments, considered as one thing rather than separately.
Related terms
Covered properly in Learn.