Too embarrassed to ask: what is asset allocation?

Asset allocation is the process of dividing your portfolio between different asset classes such as shares, bonds, property, cash and gold.

Each of these asset classes should behave in different ways in different scenarios, and have different potential risks and returns.

The aim of asset allocation is to blend these together in a way that produces a combined level of risk and return that best suits an investor’s needs.

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Asset allocation is often divided into strategic and tactical allocation. Strategic asset allocation is essentially what we’ve already described – how you allocate your money for the long-term to fit your investment goals.

So on regular basis – maybe once a year – you will rebalance your portfolio to take it back to your original strategic asset allocation.

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