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allocation

al-uh-KAY-shun /ˌæləˈkeɪʃən/

nounC1GREGMATTOEFLIELTSUPSC

formalbusiness

The action or process of distributing something; in finance, the distribution of investment funds among various asset classes, sectors, or geographical regions.

Asset allocation is a crucial investment strategy, determining how much of a portfolio is invested in stocks, bonds, cash, etc., based on risk tolerance and goals.

The story behind the word. The word 'allocation' comes from the Latin 'ad-' (meaning 'to' or 'at') and 'locare' (meaning 'to place'). It literally means 'to place something to' or 'assign to a place.' It entered English in the 17th century, referring to the act of assigning or distributing. Its financial use, particularly in 'asset allocation,' became central to modern investment theory.

Word relationships

distribution: A general term for sharing out; 'allocation' often implies a deliberate, planned distribution for a specific purpose.
apportionment: Similar to distribution, often used in a legal or formal context for dividing shares.

Commonly confused with

diversification: 'Allocation' is the specific distribution of assets (e.g., 60% stocks, 40% bonds); 'diversification' is the strategy of spreading investments across different types to reduce risk.

Word family

allocate (verb): To distribute (resources or duties) for a particular purpose.
allocable (adjective): Capable of being allocated.

Collocations

asset allocation
resource allocation
capital allocation
strategic allocation
optimal allocation

Example sentences

"Her financial advisor recommended a 60/40 allocation between stocks and bonds to balance growth and stability." Strategic asset allocation is a cornerstone of long-term investment success.
"The committee debated the optimal allocation of resources to maximize the project's impact." The government's budget allocation for education increased this year.

Memory hook

To make an 'ALLOCATION' is to 'ALLO'w a specific 'LOCA'tion for each part of your funds. ALLOCATION: assign a LOCATION.

When not to use

Avoid using 'allocation' when referring to a simple, undifferentiated lump sum or a single, undivided resource.

Fun facts

Asset allocation is often considered more important than individual stock picking for long-term portfolio performance.
There are different approaches to asset allocation, including strategic (long-term fixed), tactical (short-term adjustments), and dynamic (constantly adjusting).