What an asset class is
An asset class is a group of investments that tend to behave in broadly similar ways. Common ones include:
- Cash — bank deposits and similar. Low risk of loss in dollar terms, but returns may not keep up with inflation.
- Bonds and fixed income — loans to governments or companies that pay interest. Usually less volatile than shares.
- Shares (equities) — part-ownership of companies. Historically higher long-term returns, with significant ups and downs.
- Property — direct property or listed property trusts.
- Crypto assets — digital tokens such as Bitcoin and Ether. Highly volatile, and behave differently from traditional assets.
ETFs are a wrapper rather than an asset class: an ETF can hold shares, bonds, property trusts or a mix. What matters for allocation is what is inside it.
Allocation percentages
Allocation is expressed as a share of the total. The arithmetic is simple, but it only works if every holding is included.
| Holding type | Value | Allocation |
|---|---|---|
| Australian shares | $28,000 | 35% |
| Global share ETFs | $24,000 | 30% |
| Crypto | $20,000 | 25% |
| Cash | $8,000 | 10% |
Seen platform by platform, the crypto might feel like a side project. Seen as part of the whole, it is a quarter of this person's invested wealth.
Allocation drifts on its own
Allocation is not fixed. If crypto doubles while everything else stays flat, the example portfolio becomes $100,000 with crypto at 40%. Nobody bought anything, yet the portfolio's structure — and its sensitivity to a crypto downturn — has changed significantly.
This is why allocation is worth checking periodically. Strong performers grow into a larger share of the portfolio; weak ones shrink.
Concentration
Concentration means a large share of your wealth depends on one holding, one company, one sector or one asset class. Concentration is not automatically wrong — many fortunes were built that way, and many were lost that way. The point is to know when it exists so it is a choice rather than an accident.
Concentration can also hide. Two different ETFs may both have large positions in the same handful of global technology companies. The Diversification guide covers this overlap.
Risk exposure
Different allocations produce different experiences. A portfolio mostly in cash will barely move from month to month. One mostly in shares can fall 20% or more in a bad year. One heavy in crypto can halve in months. Allocation is one of the main ways investors decide how much movement they are prepared to live with — but only you can judge what is appropriate for your situation, timeframe and needs.
Rebalancing, as a concept
Some investors set a target allocation and periodically bring the portfolio back towards it — for example by directing new contributions to the underweight parts, or by selling some of what has grown. This is called rebalancing.
Rebalancing has trade-offs. Selling may create a taxable gain and costs brokerage. Rebalancing too often can mean trimming a winner early; never doing it can mean the portfolio's risk changes without you noticing. Approaches vary — by calendar, by tolerance band, or simply via where new money goes — and none is universally right. A licensed adviser can help if you want guidance specific to you.
Why structure can matter as much as selection
Picking a good company is hard and attention-grabbing. Deciding how much of your money sits in shares versus cash versus crypto is less exciting, but it largely determines how your portfolio behaves in a crash, how volatile it feels, and how it responds to big market themes. A brilliant individual pick that is 2% of your portfolio changes little; an asset class that is 60% of it changes everything.
Seeing your allocation in Compndr
Compndr shows your holdings grouped by type — shares, ETFs, crypto and cash — as a share of your total, in one currency. It deliberately does not give you a target allocation, a risk score or instructions to rebalance: those depend on personal circumstances Compndr does not know. It also does not yet break ETFs down into their underlying sectors or countries, so an ETF counts as an ETF.
To compare the two main ways of owning shares, read ETFs vs Individual Shares.