Asset allocation
Asset allocation is the decision about what proportion of a portfolio sits in each broad asset class — equities, bonds, cash, and others — and it accounts for far more of a portfolio's variability over time than the selection of individual holdings within those classes.
Deciding to hold 70% equities and 30% bonds is a larger decision than deciding which equities. It sets the range of outcomes you have agreed to live inside.
Why it is written down in advance
An allocation only functions as a constraint if it exists before the market moves. Decided during a decline, it will encode fear; decided during a long rise, it will encode complacency. Its entire value is that it was chosen by a calmer version of the person now looking at the screen.
An allocation that has never been written down is not an allocation. It is a description of whatever you happen to own.
Related terms
Maintained by Jared Sinclair, Founder · Syrax Global FZCO · Definitions are educational, not financial advice.
Knowing the vocabulary is the easy part.
Every term here can be learned in an afternoon. Applying them consistently under pressure is the part that decides outcomes — and the part almost nobody measures. That is what the series is about.