How an investor divides money across asset classes — stocks, bonds, cash, alternatives. The single biggest driver of long-term portfolio outcomes.
Asset allocation is how you divide your investment portfolio across major asset classes — stocks, bonds, cash, real estate, alternatives.
Studies consistently find that asset allocation explains 80% – 90% of portfolio return variance over the long run. Individual security selection (the next-tier decision) matters far less than getting the broad split right.
60% stocks (for growth), 40% bonds (for stability). Long the default 'balanced' portfolio for moderate-risk investors.
Long-run returns: historically 7% – 8% nominal in US markets. Volatility roughly two-thirds of an all-stock portfolio.
60/40 had a bad 2022 when both stocks and bonds fell, but the correlation reversal proved temporary. The underlying logic (rebalancing across asset classes that respond differently to economic conditions) remains intact.
Rule of thumb: 100 minus your age = stock allocation %. So a 30-year-old holds 70% stocks; a 60-year-old holds 40%.
Modern variant: 110 – age, reflecting longer life expectancy and more reliance on portfolio growth in retirement.
Glide-paths: many target-date funds shift automatically from aggressive (90% stocks at age 30) to conservative (40% stocks at age 65). Robo-advisors offer similar.
Include CPF in the analysis. CPF SA and OA are de facto bond-like guaranteed assets (4% and 2.5% respectively). A Singaporean with S$200k in CPF can hold a more aggressive private portfolio because the CPF balance is the 'bond' anchor.
Property: HDB or condo equity is your biggest asset for most middle-class Singaporeans. Treat housing wealth as a separate asset class — illiquid, leverage-sensitive — rather than lumping it with investments.
Currency exposure: a 100% SGX portfolio is undiversified and concentrated in Singapore property and banks. Add global ETFs (US, developed-world, emerging-markets) for genuine diversification.
How you divide your investments across major asset classes — equities, bonds, cash, real estate, alternatives. Studies consistently find that asset allocation drives 80%+ of long-run portfolio variance, far more than individual security selection.
A common rule of thumb is (110 − age) in equities, the rest in bonds and cash. A 30-year-old might hold 80/20 stocks/bonds; a 60-year-old 50/50. Adjust for risk tolerance, income stability, and total wealth — these rules are starting points, not laws.
Yes — CPF balances behave like guaranteed-return bonds (2.5% on OA, 4% on SA/MA/RA). Many Singaporeans run a more aggressive equity allocation on top of CPF because the CPF anchor provides bond-like stability. Treat CPF as the 'bond' portion of your overall portfolio.
Annually, or when an asset class drifts more than 5% from target. Rebalancing mechanically forces 'sell high, buy low' — selling appreciated positions and buying lagging ones. Don't rebalance more often than quarterly; transaction costs and timing noise reduce the benefit.