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Asset allocation

Asset allocation is the way a portfolio is divided among asset categories such as stocks, bonds, and cash or cash equivalents.

By Betta Signals Research Desk · Reviewed October 24, 2026

Plain-English definition: Asset allocation is the way a portfolio is divided among asset categories such as stocks, bonds, and cash or cash equivalents.[1]

How the term is used

Asset allocation and diversification are related but different. Allocation divides money among categories; diversification spreads money among investments within and across those categories to reduce concentration risk.[2]

What to check before relying on it

The appropriate allocation depends on an investor's own time horizon, objectives, liquidity needs, tax position, and ability to tolerate loss. A general educational page cannot determine that mix for a particular person.

Example

Owning a U.S. stock fund and a technology fund creates two line items, but the second fund may increase concentration in companies already held by the first.

RiskStockBond

Research last reviewed: October 24, 2026. This definition is educational and does not evaluate a particular security.

Sources

  1. Investor.gov: Asset Allocation — portfolio allocation among major asset categories. Accessed October 24, 2026.
  2. Investor.gov: Asset Allocation and Diversification — how asset allocation and diversification relate to risk and time horizon. Accessed October 24, 2026.