Asset Allocation Fundamentals
Lesson 1 of 5 in Portfolio Construction & Risk · 10 min read
Asset allocation is how you divide money between equity, debt, gold and cash.
Why it matters most
The mix of assets explains much of a portfolio's long-term behaviour, often more than the choice of individual funds.
Risk capacity vs risk tolerance
Risk capacity is how much loss your finances can absorb. Risk tolerance is how much volatility you can emotionally handle. A sound allocation respects the lower of the two.
Horizon-based thinking
Money needed within three years generally belongs in stable assets. Money for goals ten or more years away can carry more equity.
Strategic vs tactical
A strategic allocation is your long-term target. Tactical shifts are small, deliberate deviations; for most investors, a strategic approach with periodic rebalancing is simpler and more robust.
Take our Risk Profile assessment to see an indicative allocation range.
Key takeaways
- Allocation drives most portfolio behaviour
- Balance growth assets with stabilisers
- Base allocation on horizon and risk capacity