Asset allocation

The division of a portfolio between asset classes: equities, bonds, cash, real assets and alternatives.

A portfolio at 60% equity, 30% debt and 10% gold is making a statement about risk tolerance and horizon before any security is chosen.

The frequently quoted claim that allocation explains most of portfolio return variation is often overstated in repetition. What the underlying studies found is that allocation explains most of the variation in returns over time for a single portfolio, which is a narrower statement than the one usually made.

It remains the first and largest decision, and the one an individual investor should spend most of their attention on.