Asset allocation — how you divide your portfolio between different asset classes — is the single most important investment decision you will make. Research consistently shows that asset allocation explains the majority of long-run portfolio returns and volatility. Getting this right matters far more than individual stock or fund selection.
The Major Asset Classes
| Asset class | Examples | Role in portfolio | Risk level |
|---|---|---|---|
| Australian shares | VAS, A200, individual ASX stocks | Growth, franked income | Medium–high |
| International shares | VGS, IWLD, IVV | Growth, global diversification | Medium–high |
| Australian bonds | VAF, VGB | Defensive, stable interest income | Low–medium |
| International bonds | VBND, IAF | Defensive, currency diversification | Low–medium |
| Property (REITs) | VAP, SLF | Income, inflation sensitivity | Medium |
| Infrastructure | CORE, MICH | Stable income, CPI-linked | Medium |
| Cash/term deposits | HISA, term deposits | Capital stable, liquid | Very low |
| Gold | GOLD, MNRS | Inflation hedge, crisis protection | Medium–high |
Growth vs Defensive: The Core Split
The most fundamental asset allocation decision is how much to hold in growth assets (shares, property) vs defensive assets (bonds, cash).
Growth assets provide:
- Higher expected long-term returns (historically 7–10%/year for shares)
- Higher short-term volatility (can fall 30–50% in a severe bear market)
- Income (dividends, distributions)
- Inflation protection over time
Defensive assets provide:
- Lower volatility (bonds fell ~10–15% in 2022 rate cycle — far less than shares)
- Predictable income (bond coupons, term deposit interest)
- Portfolio ballast when shares fall
- Lower expected long-term returns (typically 4–6%)
Standard Asset Allocation Profiles
| Profile | Australian shares | International shares | Bonds | Cash | Expected volatility |
|---|---|---|---|---|---|
| Conservative | 15% | 15% | 45% | 25% | Low |
| Moderately conservative | 25% | 20% | 40% | 15% | Low–medium |
| Balanced | 35% | 30% | 25% | 10% | Medium |
| Growth | 40% | 35% | 20% | 5% | Medium–high |
| High growth | 50% | 40% | 8% | 2% | High |
These are illustrative — actual allocations should reflect your specific goals, time horizon, and risk tolerance.
Australian vs International Shares
Australian investors face a choice in their share allocation: how much in Australia vs internationally.
Case for Australian shares (higher weight):
- Franked dividends — unique tax advantage for Australian investors
- AUD-denominated — no currency risk
- High dividend yields (ASX 200 ~4–5% gross)
Case for international shares (higher weight):
- Australia is ~2% of global market capitalisation
- Heavy concentration in financials and resources (ASX has limited tech, healthcare, consumer exposure)
- Global diversification reduces single-country risk
- Broader sector exposure (US tech, European pharma, Asian consumer)
A common approach for Australian investors: 30–40% Australian shares, 40–60% international shares within the equities allocation. This is more internationally diversified than many super fund defaults but captures the franking advantage of Australian shares.
How Asset Allocation Changes Over Time
A guiding principle: as your time horizon shortens (approaching retirement), reduce growth assets and increase defensive assets.
Age-based guidelines (illustrative only):
| Age | Growth assets | Defensive assets |
|---|---|---|
| 20–35 | 85–95% | 5–15% |
| 35–50 | 70–85% | 15–30% |
| 50–60 | 55–70% | 30–45% |
| 60–70 | 40–60% | 40–60% |
| 70+ | 30–50% | 50–70% |
These are very general — a 65-year-old with a large portfolio and other income sources may hold more growth assets than these suggest. A 50-year-old planning to retire at 55 with minimal other income may need a more conservative allocation.
Asset Allocation Inside Super
Your super fund’s investment option IS your superannuation asset allocation. Most super funds offer:
- High Growth: 90–95% growth assets
- Growth: 75–85% growth assets
- Balanced: 55–70% growth assets
- Conservative Balanced: 35–55% growth assets
- Conservative: 20–35% growth assets
The default “Balanced” option at most industry funds has 60–70% in growth assets — appropriate for most working-age members.
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- Portfolio by Age Australia
- Risk Tolerance Investing Australia
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Frequently Asked Questions
What is the best asset allocation for a 30-year-old Australian? A 30-year-old with a 35+ year investment horizon typically suits a high-growth allocation of 85–95% in growth assets (Australian and international shares), with the remainder in bonds or cash. The long time horizon provides significant capacity to withstand short-term market falls. General information only — individual circumstances vary.
How often should I change my asset allocation? Major asset allocation changes should be infrequent — tied to genuine changes in your life stage, goals, or risk tolerance, not market conditions. Making frequent allocation changes in response to market news is a common source of poor investment outcomes. Annual review is typically sufficient.
Should my super and personal investments have the same asset allocation? Not necessarily. Many investors use super for growth (taking advantage of low super tax rates on long-term growth) and hold more defensive assets personally. The total picture — super plus personal — should reflect your overall risk tolerance and time horizon. This is called “asset location” — optimising which assets go in which account for tax efficiency.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.