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Glossary entry · Trade-offs
Asset allocation
Definition
The proportions of your portfolio held in different asset classes, usually stocks, bonds, and cash. Decades of research show that asset allocation explains most of the variation in long-term returns, far more than picking specific stocks.
Example
A "60/40 portfolio" is 60% stocks and 40% bonds, a classic moderate allocation.
Related
Trade-offs
Risk
The chance that an investment loses value, and how much it could lose.
Read →Volatility
How wildly an investment's price moves up and down. High volatility = bigger swings.
Read →Diversification
Spreading money across many different things so no single one can sink you.
Read →Bull & bear market
Long stretches of rising prices (bull) or falling prices (bear). Both end, eventually.
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