Asset Allocation

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Fairvoy Private Wealth | Investing & Financial Planning

Asset Allocation: Stocks, Bonds, and Cash

Asset allocation is simply how you divide your money among stocks, bonds, and cash. It’s one of the biggest drivers of how a portfolio may behave over time—how much it can grow, how bumpy the ride may feel, and how well it supports your goals.

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Fairvoy perspective: A “good” allocation isn’t the one that earns the most in a strong year—it’s the one you can stay committed to through good markets and difficult ones.

Quick start

Jump to the topics most clients ask about.

Stocks, bonds, cash Basics Large vs small, value vs growth Stocks Short / medium / long-term Time Taxes & account types Planning

Asset allocation in plain English

Think of your portfolio like a trip. Your destination is the goal (retirement income, a home purchase, a college goal, a legacy plan). Asset allocation is the “vehicle” you choose—how fast it can go, how much it may bounce around, and how it handles rough roads.

Stocks

Long-term growth engine

Stocks can provide higher growth potential over long periods, but returns can vary widely year to year.

Bonds

Stability and income

Bonds typically fluctuate less than stocks and can help smooth the ride—especially in retirement.

Cash

Liquidity for near-term needs

Cash is for what you may need soon—emergency reserves, upcoming purchases, and “sleep well” money.

Important: Asset allocation does not guarantee a profit or protect against loss, but it can help align your portfolio with your goals and time frame.
Asset type Primary job What to watch
Stocks Growth to outpace inflation over time Can drop sharply in a market downturn
Bonds Income + diversification vs stocks Interest rate changes can impact bond prices
Cash Short-term stability + liquidity May lose purchasing power to inflation over time

Stocks vs. bonds vs. cash

A helpful way to compare investments is by asking three simple questions: How bumpy is it? How quickly can I access it? How is it taxed? Most portfolios blend all three building blocks so you’re not relying on just one type of return.

Stocks: Higher expected long-term return, higher short-term ups and downs. Stocks are often the main driver of long-term growth.
Bonds & cash: Typically steadier, but usually lower long-term return. These can help fund near-term spending and reduce the chance of selling stocks after a decline.

A simple “bumpiness” visual

Every market is different, but this shows the general idea: cash is usually the steadiest, stocks can be the most volatile.

Large cap vs. small cap, and value vs. growth

Stocks aren’t all the same. Two common ways to describe stock funds are by company size and by style. These categories can take turns leading (and lagging) over different market cycles.

Large cap vs. small cap: “Large” companies tend to be more established and often less volatile. “Small” companies can offer higher growth potential, but usually with more ups and downs.
Value vs. growth: Value focuses on companies that appear cheaper relative to fundamentals. Growth focuses on companies expected to grow faster—often with higher valuations.
Large Cap

Core foundation

Often the “backbone” of a stock allocation, providing broad exposure to U.S. market leaders.

Small Cap

Extra diversification

Can add long-term growth potential, but you have to be comfortable with more volatility.

Value & Growth

Different “drivers”

Blending value and growth can help reduce the chance of being overexposed to one market theme.

International investing: Adding non-U.S. stocks can broaden diversification, because different countries and regions can perform differently over time. International investing also adds risks like currency movement and political/regulatory differences.
U.S. stocks Developed international Emerging markets

Time horizon strategy

Your time horizon is the time until you expect to need the money. In general, the shorter the time horizon, the more important it is to prioritize stability.

Time horizon Common goals Typical focus
Short-term (1–3 years) Emergency fund, upcoming purchase, tuition due soon More cash / short-term bonds; limit stock exposure
Medium-term (3–7 years) Home down payment, business planning, major life transition Balanced mix; enough stability so you’re not forced to sell after a decline
Long-term (7+ years) Retirement, long-range goals, legacy planning More stocks for growth; bonds/cash still matter for stability and rebalancing
Planning tip: Many retirees use a “bucket” approach—keeping near-term spending needs in cash/short-term bonds, with longer-term money positioned more for growth.

Example allocation by horizon (illustration only)

This chart is an educational example to show how allocations can shift as the time horizon changes.

Rebalancing and why it matters

Over time, parts of a portfolio will grow faster than others. Rebalancing is the process of bringing your allocation back toward your target—often by trimming what has grown and adding to what has lagged.

Why it’s important: It helps keep risk aligned with your plan. Without rebalancing, a portfolio can quietly become more aggressive (or more conservative) than intended.
Behavior benefit: Rebalancing creates a disciplined way to “buy low and sell high” over full market cycles.
Real-world note: Rebalancing can be done on a schedule (example: annually) or using “bands” (example: when an allocation drifts beyond a set range). The right approach depends on the account type, taxes, and your overall plan.

Active vs. passive, and understanding risk tolerance

Once the allocation is set, the next question is how to implement it. Many investors use a blend of passive index funds/ETFs and carefully selected active strategies.

Passive

Broad, low-cost exposure

Index funds/ETFs aim to track an index. They’re often cost-efficient and can be tax-friendly in taxable accounts.

Active

Potential for added value

Active managers aim to beat a benchmark. Results vary, and costs can be higher—so manager selection matters.

Risk tolerance

How you react under stress

It’s not just a questionnaire—your past experience, cash flow needs, and goals all matter.

Two types of risk:
  • Risk tolerance = how much volatility you can emotionally handle.
  • Risk capacity = how much volatility your plan can financially handle without derailing goals.

Taxes: gains, dividends, and where investments are held

Taxes don’t usually change whether an investment is “good,” but they can change how much of the return you keep. Two common tax concepts are holding period and account type.

Short-term vs. long-term: In taxable accounts, gains on investments held one year or less are generally taxed at ordinary income rates, while gains held longer may qualify for long-term capital gains rates.
Account types matter: A taxable brokerage account, an IRA/401(k), and a Roth account each have different tax rules. Asset location (what goes where) can improve tax-efficiency over time.
Account type Taxes during the year Taxes when withdrawn
Taxable brokerage Dividends/interest and realized gains may be taxable annually No “withdrawal tax,” but future sales may create gains/losses
Tax-deferred (IRA/401(k)) Typically no annual tax on growth inside the account Withdrawals are generally taxed as ordinary income
Roth (Roth IRA/Roth 401(k)) Typically no annual tax on growth inside the account Qualified withdrawals are generally tax-free
Simple takeaway: We typically consider both allocation (stocks/bonds/cash) and location (which account holds which assets) as part of the overall plan.

Working with Fairvoy

At Fairvoy, we build allocations that are designed to match your goals, time horizon, and comfort with risk—and then we monitor and adjust as life changes.

Custodian

We use Fidelity

Fidelity serves as the custodian for client accounts, holding assets, issuing statements, and providing account access.

Fee-only

Not commission-based

We are a fee-only fiduciary RIA. We’re paid through transparent advisory fees—not product commissions.

Second opinion

Free portfolio review

If you want a fresh set of eyes, we can review your current allocation, risk level, and tax considerations.

What you need to get started:
  • Recent investment statements (brokerage, IRA/401(k), annuities if applicable)
  • Approximate income needs and target time frames for goals
  • Any employer plan details (match, investment menu, stock options, etc.)
  • A recent tax return (helpful for planning; not required for an initial conversation)
What you can expect:
  • We’ll discuss goals, time horizon, and risk comfort in plain language
  • We’ll review your current allocation and identify any major gaps or concentrations
  • We’ll outline next steps (planning, consolidation options, and implementation choices)
Request a free review See FAQs

Frequently asked questions

These are common questions we hear when clients are thinking through allocation, risk, and taxes.

We typically start with your goals, time horizon, and cash-flow needs, then match that with your comfort level for market swings. The “right” mix is one you can stick with in both strong and difficult markets.
Yes. Cash is often the best tool for short-term needs and emergency reserves. The main tradeoff is that cash may not keep up with inflation over long periods.
Many investors rebalance on a schedule (such as annually) or when allocations drift outside a set range. In taxable accounts, tax impact matters, so we often coordinate rebalancing with tax planning.
International exposure can improve diversification because different regions don’t always move in sync. It can also add risks like currency movement. The amount (if any) should match your plan and comfort level.
Many portfolios hold both. These styles can lead at different times. A blended approach can reduce the chance of being overexposed to one market trend.
Index funds/ETFs are often cost-efficient and can be a strong core. Active strategies can be appropriate in certain areas, but results vary and costs are typically higher. We focus on what supports your plan after costs and taxes.
Taxes can influence both (1) what you hold and (2) where you hold it. In taxable accounts, holding period matters (short-term vs long-term gains), and we also consider dividend/interest taxation. In IRAs and Roth accounts, growth may be tax-deferred or tax-free, which can change the best “asset location.”
Fee-only means we are paid by our clients through advisory fees, not product commissions. That supports a fiduciary relationship and helps keep advice focused on your best interest.
Fidelity provides institutional custody, reporting, and client access tools. Your assets are held at the custodian, and you receive statements directly from Fidelity.
General disclaimer: This page is provided for informational and educational purposes only. While we believe the information is based on sources we consider reliable, it is not guaranteed for accuracy or completeness and may change without notice. This content is not legal, tax, or accounting advice. Please consult your attorney and/or CPA regarding your specific situation. Investing involves risk, including the potential loss of principal.

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