Why asset allocation matters
Before diving in, it’s helpful to understand why asset allocation is so important. Asset allocation—how you divide your investments among different asset types—has a bigger impact on your long-term results than picking individual stocks or funds. If you want to dig deeper into the “why,” check out our dedicated support article on the importance of asset allocation.
Step 1: Understand what an asset allocation rule is
An asset allocation rule is a set of instructions that tells Enrich how much of your portfolio you want dedicated to a certain type of investment. Each rule is made up of:
The investment types you want included (like index funds, individual stocks, actively managed fund, and shorting fixed income)
Specific characteristics (like region, sector, or credit quality)
The percentage of your portfolio you want allocated to that mix
You can create as many rules as you like, and together, they form your personal asset allocation strategy.
Step 2: Create a rule—pick your investment type(s)
Start by choosing the investment type(s) you want this rule to cover. You can select one or several from the following options:
Index equity (e.g., S&P 500 index funds)
Individual stock
Index fixed income (e.g., bond index funds)
Individual fixed income (e.g., specific bonds)
Actively managed (funds managed by a professional)
Short equity index (funds that bet against stocks)
Short fixed income (funds that bet against bonds)
You can mix and match—say, both index equity and individual stocks—if you want them grouped together in the same rule.
Step 3: Add specificity with criteria
Once you’ve picked your investment type(s), you can get more specific. The available criteria will depend on your selected investment type. Here’s what you can choose from:
For equity investments (index equity, individual stock, actively managed, short equity index):
Geographic groupings (region, subregion, country) and market development (developed vs. emerging markets)
Industry groupings (sector, industry)
Growth style (growth, blend, value)
Size groupings (giant cap, large cap, mid cap, small cap, micro cap)
Dividend orientation (no dividend, dividend growth, dividend yield)
For fixed income investments (index fixed income, individual fixed income, actively managed, short fixed income):
Geographic groups and market development
Issuer groupings (treasury/federal, state, municipal, corporate, securitized)
Credit quality or grade (AAA, AA, A, etc.)
Interest-rate sensitivity and duration (e.g., 1 year, 5 years)
Note: The specific options you see will depend on the investment type you selected. For example, “credit quality” applies to bonds, not stocks.
All the data for these criteria comes from Morningstar, so your choices are based on industry-standard categorizations and weightings.
Step 4: Set your allocation percentage
After you’ve defined your rule, decide what percentage of your portfolio you want allocated to this mix. For example, you might want 30% of your portfolio in US Large Cap stocks, or 10% in AAA-rated municipal bonds.
A tip on specificity:
The more specific your rule, the narrower the slice of your portfolio it will cover. For example, a broad rule like “US Large Cap” will include a wide range of investments, while “US Large Cap Value” narrows it down further. Less specificity gives you broader exposure, while more specificity gives you more control but requires more attention to detail.
Step 5: Save your rule and build more as needed
Once you’ve set the percentage, save your rule. You can repeat this process to create as many rules as you need to match your goals and preferences.
How rules work together
Your asset allocation rules work in concert, sometimes overlapping. For example, if you have one rule for “US Large Cap” and another for “US Large Cap Value,” some investments (like a value-oriented large cap fund) may count toward both rules. We do double-count exposures to ensure that when you say you want 30% in US Large Cap, you get exactly that, regardless of overlaps.
Any investments that don’t fit into your defined rules are considered “unallocated” or “play money.” This gives you flexibility for experimentation or opportunistic investments, while still keeping your core strategy on track.
Wrapping up
Creating your own asset allocation strategy involves tailoring your portfolio to reflect your goals, risk tolerance, and investment preferences. By setting up clear, specific rules, you give yourself a roadmap to follow, no matter what the market throws your way. Remember, you can always revisit and adjust your rules as your needs or the markets change (e.g. interest rates changes).
If you want to learn more about why asset allocation is the backbone of successful investing, check out our in-depth support article on the topic.