What is asset allocation, and why does it matter?

Asset allocation is the fund's basic recipe

Asset allocation means how your pension is split between different types of investments. A fund might hold shares, bonds, cash, property or other assets. That mix usually matters more than any single holding.

Shares are often used for long-term growth, but they can move sharply. Bonds may add stability or income, although they can still fall in value. Cash is steadier, but it may struggle to keep up with inflation over time.

Two funds with similar names can behave very differently if their asset allocation is different. A growth fund with a high share allocation will usually feel very different from a cautious multi-asset fund.

Asset allocation helps explain both return potential and risk. It is one of the first things to check before deciding whether a fund suits your pension timeline.

How to use it

• Check the percentage in shares, bonds, cash and property.
• Compare the asset mix with the fund's risk rating.
• Ask whether the mix fits your time to retirement.
• Use allocation to understand why funds move differently.
• Review it when your goals change.