What is asset allocation?

Asset allocation is how you divide your investments among different asset classes — stocks, bonds, cash, real estate, etc. A common starting point is age-based: subtract your age from 110 to get your stock percentage (e.g., age 30 → 80% stocks, 20% bonds). Younger investors can tolerate more risk; those near retirement prioritize capital preservation. Your allocation should match your time horizon and risk tolerance.