At a glance

  • Your investment goal, time frame for needing the money, and risk tolerance should determine your target asset mix.
  • Each asset class—cash, stocks, and bonds—plays a different role in a balanced portfolio.
  • Once you know your target asset mix, you can choose individual investments to hold in your portfolio.

Have you ever played a water-squirting game at an amusement park? You hold down the lever, aim at a target, and watch a horse or rubber ducky race to the finish line. If you focus only on the target, you have a good chance of reaching your goal in record time. You might even win a prize!

The same principle applies to investing. You have a goal—saving for retirement, for example. This goal, along with your time frame and risk tolerance, determines your target asset allocation—the ideal mix of assets (stocks, bonds, and cash) you should hold in your portfolio. Your target asset mix is like a bull’s-eye. Zero in on it, stay focused, and tune out the distractions around you so you can reach your goal.

Understand investment basics:
Step 1—Understanding risk and return
>> Step 2—Choosing the right asset mix
Step 3—Saving for retirement
Step 4—Opening a nonretirement account
Step 5—Investing in a stock, bond, ETF, or mutual fund
Step 6—Rebalancing

Here’s some information that can help you choose your target asset allocation.

Start with your goal, time frame, and risk tolerance

Before you choose a target asset allocation, think about these 3 things:

  1. Your goal.
    Ask yourself: What am I investing for? Are you saving for retirement or a down payment on a house? It’s possible to have multiple goals, but it may be easier to focus on one at a time.

  2. Your time frame.
    How much time do you have to invest before you’ll need the money? Consider how you plan to make withdrawals. Will you take all the money at once (to put toward a down payment on a house)? Or can you stretch your withdrawal period over several years (like withdrawing from a retirement account throughout retirement)?

    Your time frame affects the amount you’ll need to save to meet your goal. Let’s say you want a $10,000 down payment in 6 years. If you open an account with $100 and earn a 6% average annual return, you’ll need to save around $114 a month for 6 years to reach $10,000. All other factors being equal, if you want the same down payment in only 3 years, you’ll have to save over $250 a month.

  3. Your risk tolerance.
    What’s your comfort level with the unknown? Generally, stocks are riskier than bonds, and bonds are riskier than cash.

    Your target asset allocation should contain a percentage of stocks, bonds, and cash that adds up to 100%. A portfolio with 90% stocks and 10% bonds exposes you to more risk—and gives you the potential opportunity for more return—than a portfolio with 60% stocks and 40% bonds.

More information:
Make a plan to reach your goal

Understand the asset classes

Each asset class (cash, bonds, and stocks) responds differently to market movement. Holding investments from each asset class reduces your overall risk, which means your portfolio will be in a better position to weather market ups and downs.

Stocks and bonds … a gas pedal and a brake pedal for your portfolio
Your car has a gas pedal and a brake pedal, and each pedal responds differently to pressure. But your car needs both to operate effectively.

Stocks and bonds have a similar relationship in your portfolio. They respond differently to market pressure. Including both in your portfolio can help “smooth the ride” of market volatility.

The percentage of your portfolio you invest in each of these asset classes may be the most important factor in determining your portfolio’s short- and long-term risks and returns.

Asset class

Designed for


Cash (a.k.a., short-term reserves like money market funds, certificates of deposit, and savings accounts)


Use cash to save for short-term or emergency use. There’s minimal risk your investment will fluctuate in value in response to market conditions. Your money won’t significantly increase in value, but you can expect to receive some income in the form of interest.


Income and stability

When you buy a bond, you’re loaning the issuer money that they agree to repay when the bond reaches its due date. In exchange for the loan, you receive regular interest payments.



When you buy a stock, you’re a partial owner of the company. If it does well, you’ll generally profit. If it doesn’t, you may lose money.


Over the long term, you can see how different asset classes (in globally diversified portfolios) have responded to market movement.

100% bonds

Historical Risk/Return (1926–2017)

Average annual return


Best year (1982)


Worst year (1969)


Years with a loss

14 of 92


50% stocks/50% bonds

Historical Risk/Return (1926–2017)

Average annual return


Best year (1933)


Worst year (1931)


Years with a loss

17 of 92

100% stocks

Historical Risk/Return (1926–2017)

Average annual return


Best year (1933)


Worst year (1931)


Years with a loss

25 of 92

Notes: When determining which index to use and for what period, we selected the index that we deemed to be a fair representation of the characteristics of the referenced market, given the information currently available.
For U.S. stock market returns, we use the S&P 90 Index from 1926 through March 3, 1957; the S&P 500 Index from March 4, 1957, through 1974; the Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) from 1975 through April 22, 2005; the MSCI US Broad Market Index from April 23, 2005, through June 2, 2013; and the CRSP US Total Market Index thereafter.
For U.S. bond market returns, we use the S&P High Grade Corporate Index from 1926 through 1968; the Citigroup High Grade Index from 1969 through 1972; the Lehman Brothers U.S. Long Credit AA Index from 1973 through 1975; the Bloomberg Barclays U.S. Aggregate Bond Index from 1976 through 2009; and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index thereafter.
For U.S. short-term reserves, we use the Ibbotson U.S. 30-Day Treasury Bill Index from 1926 through 1977 and the FTSE 3-Month U.S. Treasury Bill Index thereafter.

More information:
What’s cash?
What’s a bond?
What’s a stock?
Vanguard portfolio allocation models

Find your target

Our investor questionnaire, which takes only about 5 minutes to complete, can help you find an appropriate target asset allocation. After you complete the questionnaire, you can open an account and choose individual stocks, bonds, mutual funds, or exchange-traded funds (ETFs) to build a portfolio that matches your target asset allocation.

You can also partner with a financial advisor to create a professionally managed customized financial plan to help you reach your goals.

More information:
Investor questionnaire
Partner with an advisor
Start with your asset allocation

For more information about saving for retirement, read our next article.


All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss.

Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.