Asset allocation: your mix

How you split money between stocks, bonds and cash drives most of your risk and return.

Your most important decision

Asset allocation is the percentage of your money in each type of investment, such as 90% stocks and 10% bonds. That mix shapes your ups and downs far more than which exact fund you choose.

Common mixes and how they behave

Illustrative mixes. Actual results depend on markets and timing.
Mix (stocks / bonds)	Ride	Often used for
100 / 0	Biggest swings, highest growth potential	Very long horizons and high risk tolerance
80–90 / 10–20	Large swings, slightly softened	Many young investors saving for retirement
60 / 40	Moderate swings	Medium horizons or lower risk tolerance
30 / 70 or less	Smaller swings, lower growth	Goals only a few years away

A common pattern is to hold more stocks while a goal is far away and gradually shift toward bonds and cash as it gets closer. Target-date funds, covered in module 5, do this automatically.

Pick a mix you'll stick with

The best allocation on paper is useless if you abandon it in a downturn. A slightly calmer mix you hold through thick and thin can beat an aggressive one you panic out of.

Key takeaways

Asset allocation is your split between stocks, bonds and cash.
Longer horizons usually allow more stocks; closer goals call for more stability.
The right mix is one you'll stick with in a downturn.

Key terms

Asset allocation: How your money is split between types of investments, such as stocks, bonds and cash.
Target-date fund: A single fund holding a mix of stocks and bonds that becomes more conservative as its target year approaches.
Time horizon: How long until you'll need the money for a goal. Longer horizons can usually handle more risk.

Ask the assistant about this