Asset allocation is the percentage split of your portfolio across asset classes — typically stocks, bonds, and cash, sometimes alternatives (REITs, commodities, crypto). Allocation is the single most important investment decision, accounting for ~90% of return variance over time according to academic research. The traditional age-based formula: bond allocation = your age; remainder in stocks. More aggressive: 110 minus age in stocks. A 35-year-old might hold 75-80% stocks, 20-25% bonds. Target-date funds automate this glide path. Rebalance annually (or when allocations drift 5%+) to maintain your target and capture buy-low/sell-high gains.
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Asset Allocation
August 22, 2026 · Aditya Gupta
Investing
Related terms
401(k)
A 401(k) is an employer-sponsored retirement plan where employees contribute pre-tax salary that grows tax-deferred until withdrawal. The…
Active Management
Active management is the attempt to outperform a benchmark through stock selection, sector rotation, market timing, or any…
Alpha
Alpha is excess return relative to a benchmark, adjusted for risk (beta). Positive alpha means an investment outperformed…
Backdoor Roth
The Backdoor Roth is a strategy for high earners (above the Roth IRA income limit) to contribute to…
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The bid-ask spread is the difference between the highest price buyers will pay (bid) and the lowest price…
