Asset Allocation

As an avid Boglehead investor, my portfolio is primarily composed of a few low-cost index funds. However, sometimes the simplicity of the portfolio feels a bit boring, and I find myself wanting to invest in something more exciting. When I feel this way, I allow myself to allocate up to 5% of my portfolio into what I call “Fun Money.” Over the years, I’ve had various Fun Money allocations. Some made money, some lost money, but it doesn’t really matter, it’s only 5% of the portfolio. ...

What is Asset Allocation? In the world of investing, you will often hear the term “Asset Allocation”. Asset allocation, as the name suggests, is the distribution of each asset class in your investment portfolio. The two most common asset classes that are considered when building a portfolio are stocks and bonds. Stocks are the high-risk, high reward asset and bonds, also referred to as “fixed income”, are the low-risk, low reward asset. There are other assets classes that exist such as cash, commodities, real estate, precious metals, and, in recent years, crypto currencies. Understanding how to balance these asset classes is key to building a portfolio that aligns with your financial goals. ...