Asset allocation – Financial Terms

Asset allocation is a strategy, advocated by modern portfolio theory, for maximizing gains while minimizing risks in your investment portfolio. Specifically, asset allocation means dividing your assets among different broad categories of investments, including stocks, bonds, and cash.

An asset allocation model specifically the percentages of your portfolio allocated to each investment category that’s appropriate for you depends on many factors, such as how much time you have to invest, your tolerance for risk, the direction of interest rates, and the market outlook.

Many experts advise you to adjust or rebalance your portfolio at least once a year to bring it back in line with your model or to realign your model as your financial goals change. Brokerage firms regularly revise the allocations they recommend as they take changing economic conditions and their sense of future developments into account.