Beginning with asset allocation, this is simply the mix of the various types of investments within a particular account. Usually, stocks and bonds are the main two components, but sometimes there are less common securities as well such as real estate or gold. An 80/20 asset allocation means the account consists of 80% equities (stocks) and 20% fixed income (bonds). Asset allocation varies depending on your risk tolerance, financial goals, and time horizon.
Asset location, on the other hand, involves the type of account the investments are housed in. Investment accounts mainly differ by their tax treatment. For example, non-qualified accounts such as a brokerage account don’t have any special tax advantages. IRAs and 401(k)s have tax-deferral, meaning no tax is paid on contributions, only on future withdrawals. Roth IRAs and Roth 401(k)s have taxation on contributions but none for withdrawals. Investments themselves have different tax consequences as well and therefore it is important to determine which type of account should contain certain investments for maximum tax efficiency.