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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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