Glossary · Risk · Beginner-friendly
Asset allocation
In plain English
Asset allocation is how you split money between stocks, bonds, cash, and other assets. That mix usually matters more than picking one “perfect” stock.
Everyday analogy: Choosing how many eggs go in each basket before you decide which eggs.
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Why it matters
Allocation sets the portfolio’s typical ride. Stock picking rarely rescues a mix that is too aggressive for the holder.
A bit more detail (optional)
Why mix matters
Different assets respond differently to growth, inflation, and rate shocks. The mix sets the portfolio’s typical volatility before any stock pick does.
Rebalancing
Drifting weights after a bull run quietly increase risk. Periodic rebalancing restores the intended mix.
Simple examples
Same stocks, different ride
Two investors hold the same equities. One is 90% stocks / 10% cash; the other is 60/40 with bonds. Same names, very different drawdowns.
Same stocks, different drawdown
90/10 vs 60/40 with overlapping equity names can feel like different products in a bear tape - because the mix dominates.
Easy mistakes to avoid
- Copying someone else’s mix without their timeline
- Letting winners drift the portfolio into unintended risk
- Changing allocation based on last month’s headlines
Remember: Pick the mix you can hold - then worry about individual names.