Good food is all about finding the best ingredients, combining them in the right proportions, adjusting to taste, and cooking for the proper amount of time.

Your investment portfolio works a lot like that, too. But here, the ingredients are called asset classes. And how you combine them is called asset allocation.

The way you mix your investment options can have a big impact on reaching your financial goals. “Asset allocation works in tandem with your comfort with risk; it helps set the foundation for the success of your investment strategy,” says Heather Winston, assistant director of financial advice and planning at Principal^®.

You don’t need to know all the ins and outs right away, but getting comfortable with asset allocation will help you feel more confident in your choices—or the choices you make with your financial professional. Here are some steps to help you find a good mix and maintain it over time.

Getting to know your ingredients

Investors generally work with three key asset classes: cash, fixed income, and equities. Each offers a different mix of risk and return and serves its own purpose in an overall asset allocation plan.

Cash

Fixed income

Equities

Those are the three basic asset classes. There are some varieties for each. For example, within equities, you can find variations based on location (emerging market equities or European equities) or by company size, often called market capitalization (small-cap, mid-cap, and large-cap). Each variety brings slightly different levels of risk and return.

So what is asset allocation?

Think of asset allocation as your mix of these ingredients. It uses the benefit of diversification—that’s the idea that asset classes don’t move in sync, so one or more may grow while others decline. (Or in some challenging years, one asset class could simply go down less than the others.) Winston adds, “The end goal is to have longer, more consistent growth by investing within and across a variety of asset classes.”

So, how to determine what investments are best for you? It’s typically based on how much time you have until you need to dip into these investments and your comfort with risk.

Balancing assets based on age and time

Investing requires time for assets to grow. Knowing how much time you have can help define how you invest.

If you’re investing for retirement in your 20s, you may have 30 or 40 years to reach your goal. If you’re 60, you may have less than a decade before you need that money.

Because equities can be volatile, they could swing from one extreme to another. Maybe they go up 20% one year and down 10% another. If you don’t need your money for quite a while, the risk of losing some of your value in one or two years could be a risk worth taking, since you may have time for the market to bounce back.

Typically, if you have more time, you might hold higher proportions of equities to capture that potential growth. As you get closer to retirement age (or needing to access to your money), it’s typically common to allocate more to fixed income to minimize the risk of losing the growth you’ve had over the earlier years.

Determining your risk tolerance

The other key factor: your personal appetite for risk. Some people are comfortable knowing they could lose money in the short run if there’s a possibility for bigger gains in the long run. Others are more conservative, preferring to take less risk with the money. Your level of comfort with market volatility is your risk tolerance. (Take our quiz to learn more about your investing personality.)

This goes hand in hand with the time you have to reach your investment goal. “Our risk tolerance stays reasonably consistent throughout our lives,” says Winston, “but our capacity to take on risk typically changes—especially around life events.” Though you may be comfortable with risk, if you need the money in just a few months, it’s generally better to be more conservative.

Rebalancing assets over time

As your tastes and circumstances change, so can your investment goals and preferences. Checking in with your investment portfolio can help make sure you’re on track to meet your goals. You may need to stir the mix or add new ingredients—that’s called rebalancing.

This is important because your allocation can move away from your target as your assets grow or shrink. Let’s say you started the year with 70% of your portfolio invested in equities. If those equity investments did a lot better than the rest of the portfolio, they may have grown to become 80% of the total. To rebalance to your original allocation, you might transfer some equities and reallocate the money into your other asset class choices to get the mix back to your target.

If your assets are invested within a plan that offers auto rebalancing, this may be taken care of for you. Otherwise, plan on checking in at least once a year. (Or if you have a major life event, lift the lid to see if you need to make an adjustment sooner.)

Be careful, though. Checking in too frequently could get you into a short-term mindset. Investing for retirement is a long-term plan. There’s a chance that daily or weekly peeks could cause you to move assets too often, increasing your costs and hampering your portfolio’s chances of growing.

Managing market volatility

On that note, don’t be too quick to toss out your mix. Investing has its ups and downs in the form of market volatility. Severe market drops can be scary, but panicking can lead to bad decisions.

“Our natural inclination is to respond to volatility,” says Winston. “However, you can consider using an asset allocation strategy specifically so you don’t have to react to what the market is doing.”

Instead, refer to your target allocation—your ideal balance of different types of assets—and remember your investment plan.

Target date funds vs. target risk funds

Not everyone has time to do investment research and pick a bunch of individual stocks and bonds. That’s why investment products like mutual funds and exchange-traded funds (ETFs) exist. These types of investments have a professional manager who researches, selects, and combines the ingredients for investors in the product.

Some investment options even take care of the asset allocation. Two types are target date and target risk.

With a target date fund, you can pick one that has a year close to when you’ll retire or need the assets. The portfolio manager selects all the investments, and, over time, adjusts the asset allocation to typically be more conservative as that date approaches.

With a target risk fund, you pick the investment that best matches your risk tolerance, from “conservative” to “aggressive.” The portfolio manager then selects investments that match that level of risk and builds the asset allocation to suit it.

Alternatively, you may consider managed accounts or robo-advisors for an even deeper level of personalization.