Asset allocation comes down to combining the different asset classes in a way that reduces your overall investment risk, and therefore the risk of not achieving your goal. Can Help You Grow Rich . Some financial planners recommend that their clients invest 70 percent of assets in stocks and 30 percent in bonds. Some suggest an 80-20 split. Some want their clients to invest 100 percent in equities.
Every situation is different and demands a unique, investor-specific strategy.
Generally, the longer you have to retirement, the longer you have to weather market downturns and the more aggressive you can be. As you move toward retirement, many financial planners suggest that you move at least some of your money into more conservative investments. However, if you are planning to be retired for a number of years, you will need to keep some of your portfolio in aggressive investments, to outpace inflation. So, asset allocation allows for a trade-off of substantial risk for a better probability of achieving your financial goals. The goal, through diversifying, is to minimizing your risk and keep you from having to guess about what will be hot and what won't in the market.