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Asset allocation

How you split money between shares, bonds, cash and everything else.

The evidence is fairly consistent that this decision, rather than individual stock selection, drives most of the variation in a portfolio's returns and almost all of its risk.

It is also the decision people spend the least time on, because choosing between shares and bonds is boring and choosing between shares is fun.

Figure

One investment is the fund

the oneeverything else

Most go to zero and that is not a failure of selection, it is the shape of the asset class. It is why a venture investor has no use for a company that will merely do quite well.

Why it matters

It is the highest-leverage decision available to you, and the one you are most likely to neglect.

The mistake everyone makes

Agonising over which stock to buy while never deciding how much of your wealth should be in stocks at all.

Related terms

Diversification
Owning things that do not move together, so that no single failure ruins you.
Rebalancing
Selling what has grown and buying what has not, to restore your target mix.
Systematic risk
The risk of the whole market, which no amount of diversification removes.

See Asset allocation on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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