Understanding Asset Allocation Understanding Asset Allocation Understanding Asset Allocation

Understanding Asset Allocation


Saxo Group

How often do you actually go to the beach? 

Go ahead and think about your clothing. If you’re like us, you have clothing for work, clothing for summer, clothing for nights out with family and friends, clothing for the beach, etc. Suppose you determine that 20% of your clothing is suitable for work, 20% is suitable for nights out and 60% is suitable for time at the beach. If you actually spend 70% of your time at work, this particular mix of clothing would not make particularly good sense for your lifestyle. 

What is asset allocation? 

Asset allocation is just a fancy way of saying asset mix. If 60% of the value of your assets is stocks, 35% is bonds and 5% is cash equivalents, then you have a 60/35/5 asset allocation to stocks/bonds/cash. It’s that simple. 

What’s the best asset allocation? 

There isn’t a “best” asset allocation because every individual’s situation is different. The best asset allocation for you is one that is tailored to you and your current and particular financial situation, goals, risk tolerance and time horizons. 

How to think about it 

In general, cash and cash equivalents are appropriate investment for short-term financial goals. This might be something like saving for down payment on a house in one year. Bonds are appropriate for medium-term goals. This might be something like saving for a car you plan to purchase in five to ten years. Stocks are appropriate for long-term goals. This might be something like saving for retirement in 20 to 30 years. These are just guidelines. Any number of circumstances particular to you might cause you to tweak these guidelines.  

Your asset allocation isn’t static 

Asset allocation isn’t a set it and forget it kind of thing. Your current asset allocation should match your current situation. Time alone will shrink your time horizon for all your financial goals. Short-term goals have an end date. Medium-term goals become short-term goals. Long-term goals become medium-term goals. You should slowly change your asset allocation to reflect your changing situation. In general, your risk tolerance will slowly decline over time. If you add new goals, your asset allocation should change to reflect this change. 

Target date products 

There are a number of investment products on the market that will gradually and automatically change your asset allocation from higher risk assets to lower risk assets over time to reflect your changing risk tolerance due to your shrinking time horizon. These products are typically date specific to align with your age or retirement date. For example, “Retirement Date 2055 Fund.” The fund company will have several different target date funds in order to accommodate all of their clients. They will all follow the same changing asset allocation lifecycle. Where in the lifecycle the fund is will depend on the target date. After the target date, the asset allocation remains static at the final and most conservative asset allocation. These products are designed for investors who do not want to slowly change their asset allocation on their own.  


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992