Table of Contents

What is asset allocation?

Types of assets

Allocation vs. diversification

Three examples of portfolio allocation

Rebalancing an investment portfolio

The bottom line

LearnInvesting 101What Is Asset Allocation? Definition & Examples

What Is Asset Allocation? Definition & Examples

Jun 21, 2022


5 min read

Asset allocation may be the most important determinant of whether an investor can reach a wealth goal, based on the time horizon and the willingness for volatility risk.

When someone starts setting aside money to save for their kids’ college tuition or retirement, they’ll eventually come across an investment strategy known as asset allocation. Asset allocation is important for investors who want to reach a particular goal while striking a balance between maximizing returns and limiting the risk of price volatility in those assets.

What is asset allocation?

Asset allocation is the act of splitting up investment dollars into several different pools—usually stocks, bonds, and cash—with the goal of achieving portfolio diversification. It is the antithesis of putting all one’s eggs in one basket.

How one allocates assets is ultimately a personal decision, and plans can range from simple to complex. Usually, though, the goal is consistent: to limit excessive losses when one asset or group of assets falls in price. The expectation is that the decline in one type of asset will be offset or limited by the performance of other assets in an investor’s portfolio. 

Investors consider two factors when deciding how to allocate their assets. 

  • Time horizon.

    How many years does an investor foresee in building wealth? How soon will the investor want to start tapping that wealth?

  • Risk tolerance.

    How much nerve does the investor have for the ups and downs of the markets?

Types of assets

Traditional asset allocation focuses on three main types of assets:

  • Stocks

    . Stocks have produced the highest average annual rate of return, about 10%, for almost a century. The tradeoff: they have greater volatility. The financial crisis of 2008-09 precipitated a decline of about 50% in the benchmark Standard & Poor’s 500 Index, and the coronavirus crash exceeded 30% between February and March 2020. Even with these setbacks, the S&P 500 tripled from 2007 to the end of 2021.

  • Bonds

    . Bonds usually have lower average returns than stocks because they typically are less risky, with the exception of high-yield, or junk, bonds. Total returns for bonds—interest income plus price change—were relatively strong from 2000 through 2020 for two reasons: Stocks, which often are alternatives to bonds, had one of the weakest decades in 2000-2010, and interest rates and bond yields declined steadily to record lows. (As rates fall, bond prices rise.) However, with inflation accelerating in 2021 and the prospect of higher interest rates, the pendulum on bond returns may swing the other way. 

  • Cash

    . This usually means cash-equivalent investments such as three-month Treasury bills and money-market funds. Rates for these assets came way down starting in the mid-2000s, like rates for bonds, as the Federal Reserve made unprecedented cuts in key interest rates to near zero during the financial crisis. These investments returned about 0.1% to 0.5%, as of 2021.

  • Other

    . Besides the traditional three above, there are other assets that could be included in an asset-allocation plan. These are often called alternative assets or investments, and they include real estate, hedge funds, venture capital, private equity, derivatives, precious metals, and collectibles such as art, antiques, cars, and wine. Alternative assets may offer attractive returns, but also pose greater volatility risk and have much less liquidity, meaning they can be hard to sell on short notice.

Allocation vs. diversification

Asset allocation is the first step in creating an investment portfolio. A traditional mix for long-term investments has been 60% stocks and 40% bonds. The second step is just as important—diversifying your investment portfolio within those assets. Allocation and diversification are both about spreading risk. Diversification within the stocks allocation answers the question—what kinds of stocks? Technology stocks? Financial stocks? Large-cap company stocks? And for bonds—what kinds of bonds? Government bonds? Company bonds? Diversifying the stocks allocation, for example, might consist of 20% each in large-cap, midcap, and small-cap stocks. For the bonds allocation, the investor might put 20% in U.S. Treasury bonds (generally the least risky, less return), and 20% in corporate bonds (generally a bit riskier, but marginally higher returns).

At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.

Get Started

Three examples of portfolio allocation

Consider three hypothetical investors, their goals, and circumstances. 

  1. “I want to have $2 million by the time I reach 60. I turn 30 next month. My parents can help me get started with $25,000.’’

    A young investor won’t build $2 million in wealth by age 60 if it’s mostly in bonds and cash because the returns are too low. This investor has a long time horizon and therefore can tolerate more risk, so the asset allocation might lean toward stocks.

  2. “I’ll need $200,000 when my child begins college in 10 years. I have saved about $100,000.”

    A parent planning to pay for a child’s college education has a shorter horizon, 10 years, to double the $100,000 set aside. An asset allocation plan might aim for a 50-50 mix of stocks and bonds. An average return of 7% would be needed to reach this goal, based on the Rule of 72.

  3. “We expect to retire next year and move from New Jersey to Florida. We want to buy a house there, but not take out a large mortgage, so we hope to make a 50% down payment of about $400,000. Our investment portfolio is valued at about $1.6 million.”

    The couple buying a home in Florida within a year may have a greater cash allocation set up for the $400,000 down payment. So their $1.6 million portfolio might consist of 35% stocks, 40% bonds, and 25% cash. 

Rebalancing an investment portfolio

Asset allocations can drift over time, as one type of asset rises more rapidly in value than others, or vice versa. A long bull market in stocks may have led an investor’s original 60%-40% stock-bond allocation to become 80-20, for example.

Rebalancing is the process of getting the allocation back to the original mix, or changing the mix altogether if the investor’s circumstances have changed. In the above example, an investor would sell stocks and use the proceeds to buy bonds, restoring the 60-40 blend.

Investors who don’t want the chore of rebalancing can let others do it for them. Target-date funds and robo-advisors monitor asset allocations and automatically rebalance to keep to the investor’s original allocations.

The bottom line

Asset allocation may be the most important determinant of whether an investor can reach a wealth goal, based on the time horizon and on the ability and willingness to accept volatility risk. Many investors use professional wealth managers to help them make the appropriate decisions in creating an asset-allocation plan.


Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.

Three Things, a newsletter from Titan

Stay informed on the most impactful business and financial news with analysis from our team.

You might also like

How to Invest $2,000

Investors with $2,000 have several options: high-yield savings accounts, index funds, actively managed funds, robo-advisors, stocks, and real estate investment trusts.

Read More

Understanding Portfolio Construction: How to Diversify and Assess Risk

Constructing a portfolio that minimizes risk while maximizing potential gains is a delicate and ever-changing balance. Learn about the process of creating a portfolio.

Read More

What Are Interval Funds and How Do They Work?

Interval funds are investment companies that combine characteristics of both open and closed-end funds. Investors can buy them at any time but sell them at certain intervals.

Read More

What Is Return on Investment (ROI)?

Return on investment is a useful basic measure of the profitability of an investment or business project. But it has limitations that investors use to have annual-equivalent returns.

Read More

Cash Management

Smart Cash

Smart Cash FAQs

Cash Options

Get Smart Cash


© Copyright 2024 Titan Global Capital Management USA LLC. All Rights Reserved.

Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.

Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.

Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.

The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit for applicable terms and conditions and important disclosures.

Cryptocurrency advisory services are provided by Titan.

Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.

Contact Titan at 508 LaGuardia Place NY, NY 10012.