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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Asset Allocation

Definition:

This concept is about where you put the stuff (assets) you have. The notion of "allocation" is a brokerage-y concept that attempts to optimize the risk-reward issues that investors encounter in volatile markets and climates. How much time do you have until you need to consume your investments? If you have a very long time, you can afford much more risk in your portfolio than if you are an old geezer and... don't. If you're somewhere in the middle, what about bonds - how exposed are you to them and to the negative effects on bonds of high inflation? What about real estate, the stock market, private investments? The structure most brokerages use in discussing the allocation of assets among these various categories is tactical (e.g. what's the market gonna do the next few years?) and strategic (e.g. how long do we have to bail us out if we are wrong? How much risk we can take? How much volatility can we endure without pulling out what's left of our hair?).

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