{"id":22861,"date":"2026-04-20T02:45:21","date_gmt":"2026-04-20T02:45:21","guid":{"rendered":"https:\/\/borrowingnexus.com\/?p=22861"},"modified":"2026-04-20T02:45:24","modified_gmt":"2026-04-20T02:45:24","slug":"what-is-asset-allocation-ramsey","status":"publish","type":"post","link":"https:\/\/borrowingnexus.com\/?p=22861","title":{"rendered":"What Is Asset Allocation? – Ramsey"},"content":{"rendered":"
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There are times in life when you have to make some big decisions. Where to go to college, who you\u2019re going to marry, what house to buy . . . you know what I\u2019m talking about! These are decisions that are going to have an impact on the rest of your life.\n <\/p>\n

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Market chaos, inflation, your future\u2014work with a pro to navigate this stuff.<\/p>\n<\/p><\/div>\n

But sometimes we don\u2019t put as much thought into another big decision: how to invest our hard-earned money for retirement. Having a \u201cset it and forget it\u201d attitude isn\u2019t going to cut it, people! When it comes to taking the right steps to building\u00a0wealth and planning for your future, deciding how you\u2019re going to spread out your investments is right there at the top of the list.\n <\/p>\n

There\u2019s a fancy term for that in investing circles: asset allocation<\/em>. Don\u2019t worry, it\u2019s not as complicated as it sounds! We\u2019re\u00a0going to break it down for you in plain English so you know what it is and what it means for your investment strategy.\n <\/p>\n

What Is Asset Allocation?<\/h2>\n

Asset allocation<\/em> is just a fancy term for describing the way your investments are divided in your portfolio among different types of assets, like\u00a0stocks, bonds and cash.\n <\/p>\n

For example, stocks\u2014like\u00a0growth stock mutual funds\u2014might make up 80% of your retirement portfolio while you also have 15% in bonds and the remaining 5% in cash investments. That means your asset allocation is 80% stocks, 15% bonds and 5% cash.\n <\/p>\n

Makes sense, right? The trick is getting your asset allocation right. We\u2019ll get to that in a minute. \u00a0\n <\/p>\n

Why Does Asset Allocation Matter?<\/h2>\n

Deciding where to send your money is one of the most important investment decisions that you\u2019ll make. Why? Because your asset allocation\u2014the way your investment portfolio is split up\u2014will play a huge role in determining what kind of returns you should expect from your investments over the long haul.\n <\/p>\n

If you want to reach your retirement goals, you need to get your asset allocation right. It\u2019s a huge deal!\n <\/p>\n

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Ramsey Solutions is a paid, non-client promoter of SmartVestor Pros.<\/em>\n <\/p>\n

What Are Some Different Types of Asset Allocation?<\/h2>\n

The idea behind asset allocation is to balance risk and reward by dividing up your portfolio\u2019s assets based on your financial goals, how much risk you\u2019re comfortable taking on, and the total amount of time you expect to hold onto your portfolio.\u00a0\u00a0\n <\/p>\n

Based on those factors, there are basically four different types of asset allocation you need to know about:\n <\/p>\n

1. Conservative Asset Allocation<\/h3>\n

This approach is designed for investors who are afraid of the stock market and want to minimize their risk. They wouldn\u2019t go skydiving with you if you paid them to. Most of your investments in a conservative form of asset allocation will be in bonds and cash, while only a small percentage will be used to buy stocks.\n <\/p>\n

This is\u00a0not\u00a0<\/em>a winning approach for saving for retirement. The average annual returns for bonds hover around 5%, and cash investments\u2014think certificates of deposit (CDs) and money market accounts\u2014have an average rate of return around 1%.1,2<\/sup>\u00a0Don\u2019t settle for wimpy returns from bonds and cash investments\u2014you can do much better! \u00a0\n <\/p>\n

2. Moderate Asset Allocation<\/h3>\n

This is for folks who have a\u00a0slightly\u00a0<\/em>higher tolerance for risk, but the idea of the stock market going up and down still makes them feel queasy. One example of a moderate approach is to have around one-third of your investments in stocks and the rest in bonds and cash.\n <\/p>\n

Is this type of approach going to cut it?\u00a0Nope!<\/em>\u00a0The returns you\u2019ll get from bonds and cash investments simply aren\u2019t\u00a0<\/em>enough to keep up with inflation, which cuts into your\u00a0purchasing power\u00a0by 2\u20133% each year.3<\/sup>\n <\/p>\n

3. Balanced Asset Allocation<\/h3>\n

This is the \u201cyin and yang\u201d approach to asset allocation, where half of your investments are in stocks and the other half is in bonds and cash.\n <\/p>\n

The problem with a balanced asset allocation is\u00a0<\/strong>that the values of stocks and bonds often don\u2019t move together\u2014in fact, it\u2019s usually the opposite. When stock prices start to rise, bonds usually start going the other direction, and vice versa. Having an even mix of bonds and stocks in your portfolio is like having two people in the same boat rowing in opposite directions\u2014you\u2019ll end up going nowhere fast!\n <\/p>\n

4. Growth Asset Allocation<\/h3>\n

That brings us to the last type of asset allocation: growth asset allocation. When you use a growth approach to asset allocation, that means you understand the risks of the stock market and most (or\u00a0all<\/em>)\u00a0<\/em>of your investment portfolio is made up of stocks.\n <\/p>\n

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Will you experience some highs and lows investing in stocks over the years? Absolutely. But you have to remember that the stock market historically has an average annual rate of return between 10% and 12%.4<\/sup>\n <\/p>\n

This is the mindset we\u00a0want you to take with asset allocation. You want to think\u00a0growth.<\/em>\u00a0Saving for retirement is a marathon, not a sprint. This is not some get-rich-quick scenario\u2014you\u2019re in this for the long haul. If you stick with it and don\u2019t jump off at the first sign of trouble, you\u2019ll give yourself a chance to have the retirement you\u2019ve always dreamed of.\n <\/p>\n

What Is the Best Approach to Asset Allocation?<\/h2>\n

When it comes to investing, there\u2019s\u00a0always\u00a0<\/em>going to be some risk involved. You can\u2019t avoid it! The key is to manage those risks through diversifying your portfolio the right way.\n <\/p>\n

That\u2019s why we\u00a0want you to invest solely in good\u00a0growth stock mutual funds, which allow you to diversify your investments by letting you buy pieces of stock from many different companies.\n <\/p>\n

Here are a couple reasons we\u00a0like mutual funds so much. First of all, stocks historically have\u00a0much\u00a0<\/em>better returns than bonds\u2014which means more money in your nest egg over the long haul. If you start shifting to bonds and cash as time goes on, you risk falling behind and potentially having hundreds of thousands of dollars less in your nest egg by the time you retire. \u00a0\u00a0\n <\/p>\n

And second, by investing in growth stock mutual funds, you\u2019re naturally diversifying your retirement savings so that your portfolio isn\u2019t dependent on single stocks and the fortunes of individual companies (that\u2019s a\u00a0bad\u00a0<\/em>plan).\n <\/p>\n

You can spread out your investments and reduce your risk by investing evenly across four different types of growth stock mutual funds:\n <\/p>\n