Glossary · from the DESK dictionary
Asset Allocation
The strategic distribution of a portfolio across different asset classes.
In plain words
The decision of what percentage of a portfolio to invest in stocks, bonds, commodities, etc.
In more detail
Asset allocation is the distribution of a portfolio across asset classes. Empirical studies show it explains the bulk of the variation in portfolio returns over time — markedly more than security selection and timing. The frequently quoted figure above 90 percent is, however, often misunderstood: it describes the explanation of return variation, not of the return level, which are two different statements.
Example
Two funds with the same 60/40 allocation show practically identical fluctuation patterns over ten years — yet their end results are 22 percentage points apart. The allocation explained the path, not the level.
What it means for traders
A central concept in any long-term investment strategy.
Common pitfalls
The 'optimal' allocation depends heavily on individual goals, time horizon, and risk tolerance — there's no one-size-fits-all answer.
Related terms
Aggressive Investment Strategy · Allocation · Asset · Asset Allocation Fund · Asset Class · Automatic Rebalancing · Balanced Fund · Buy and Hold · Diversification · Balanced Funds · 100% Equities Strategy · Pension Fund · Rebalancing · Target Allocation
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.