Asset allocation is the apportioning of available funds among a number of different categories-or classes-of assets, such as stocks, bonds, cash, real estate, and others. Asset allocation attempts to apportion funds in a way that meets the needs of a particular client and dampens the effects of periodic market fluctuations.

Because of the appealing logic behind asset allocation, it is not uncommon to see portfolio allocation recommendations included in popular financial publications. "We are recommending that clients be 20% in money market funds, 30% in intermediate-term bonds, and 50% in stocks at this time," is a typical pronouncement.

While this type of recommendation is common, and may actually be good advice for some investors, the financial circumstances of individual clients-as well as their objectives, knowledge, time horizon, and capacity for risk-are unique, so a "one size fits all" approach to asset allocation is not universally satisfactory. The asset allocation process itself is more art than science, and there is no standardized, single approach to the allocation and rebalancing process. Most allocation models are based on broad asset categories and assumptions about the client. Therefore, suggested allocations vary widely among advisers.

Author: Jason G. Hovde, MBA, CFP®

Jason G. Hovde is the investments professor at the College for Financial Planning. Prior to joining the College, Jason had a financial planning/investment advisory practice and was a branch manager for one of the largest independent broker/dealers in the country. Additionally, he spent several years with another independent broker/dealer, first as a trader and options principal, and then as a member of the senior management team. Jason holds two bachelor’s degrees, one in accounting and the other in behavioral science from Metropolitan State University of Denver, as well as an MBA in finance and accounting from Regis University. You can contact Jason at

Complexity Level: Intermediate