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Updated 2mo ago.
Updated 2mo ago.
Asset allocation refers to how an investor distributes their portfolio among different asset classes (stocks, bonds, cash, real estate). It is the most important decision in investing, as it determines approximately 90% of the variability of long-term returns.
A typical beginner portfolio might be: 80% global equities (VEQT.TO or XEQT.TO), 20% bonds (ZAG.TO). A more conservative investor near retirement might choose 60% stocks / 40% bonds. VBAL.TO (Vanguard Balanced ETF Portfolio) automatically maintains a 60/40 ratio.
Your asset allocation must reflect your risk tolerance and time horizon, not your short-term market outlook. Studies show that trying to "time" the market (shifting between stocks and bonds based on news) generally hurts returns. A fixed allocation, rebalanced regularly, produces better outcomes.