UK Accounting Glossary
Asset allocation is the dividing of one’s investment portfolio among different classes of investments. Asset allocation involves choosing among stocks, bonds, cash, and such assets as real estate and precious metals. Investors practice asset allocation to maximize their investment return for the level of risk they are most comfortable with; this frequently (but not always) involves diversification, which spreads risk among several investments. Asset allocation is also based on one’s investment goals, since different asset classes have different levels of risk and expected returns. Also, asset allocation can differ according to one’s age, since risk tolerance often decreases with age. Financial planners often help individuals with asset allocation by helping them clarify risk tolerance, investment objectives, and desired investment classes.
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This glossary post was last updated: 4th February 2020.