We've all heard that it's a bad idea to put all your eggs in one basket, and the saying holds true for nest eggs as well. However, not everyone understands how the concept works when it comes to retirement saving, and that can be a costly mistake.

More than half (55%) of Americans don't know how their retirement investments are allocated, according to a recent survey from Schroders. Even more worrisome, though, is that 43% of survey respondents say they don't plan to adjust their asset allocation as they head into retirement.

Not understanding how your assets are allocated can result in being overly risky or overly conservative in your investments -- both of which can be financially dangerous and hurt your long-term savings.

Couple looking at documents and using a calculator

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How should your retirement fund assets be allocated?

Asset allocation essentially refers to where, exactly, all your funds are invested. To protect your nest egg, you'll want to diversify your investments as much as possible.

If you invest your life savings in a single stock and that stock plummets, you've suddenly lost a lot of cash. But if you diversify your investments and spread your cash across hundreds of different stocks and bonds, you're less likely to lose a lot of money if some of those investments go south.

Also, your asset allocation shouldn't be set in stone, because your risk tolerance will change as you get older. When you're young and still have decades before you can even think about retiring, you'll want to invest more heavily in stocks because you can afford to be riskier. The stock market can be bumpy in the short-term, but when your money has decades to grow, your savings will likely see a strong upward trend over time.

As you get older and closer to retirement age, your portfolio should be less focused on stocks and more heavily weighted toward bonds. Bonds are more conservative, so although your investment gains won't be as significant, you're less likely to see your savings crash and burn if the stock market takes a tumble.

However, it's important to note that you should still invest at least a portion of your portfolio in stocks even as you enter retirement. Your investments won't stop growing simply because you've retired, and you'll want your money to last at least another decade or two (or three, depending on how long you live). If you're too conservative with your investments, you won't see the growth you need to make your savings last as long as they need to.

The target-date fund: A popular asset allocation solution

If the thought of managing all your investments is intimidating, you're not alone -- many workers don't want to have to actively manage their savings and make sure all their money is allocated correctly. That's why target-date funds are an attractive option for many investors.

A target-date fund is an investment option offered within most 401(k) and IRA plans. It allows you to simply input the year you intend to retire, and everything else is taken care of for you. The fund will automatically adjust your asset allocation year after year to get more conservative the closer you get to your target retirement date, so all you have to do is contribute your cash and let your investments do their thing.

That said, there are some potential drawbacks to target-date funds. For example, if you end up retiring sooner than you expected, perhaps due to unexpected health issues or job loss, your target date will no longer be accurate -- and that could throw off your entire retirement plan. Also, target-date funds are typically made up of various mutual funds, some of which may charge high fees that can eat into your savings.

This isn't to say that target-date funds are a bad investment. For many workers looking for a straightforward way to make sure their investments are diversified properly, this type of fund is the right way to go. But no investment is 100% hands-off, so it's still wise to keep an eye on your goals and make adjustments to your retirement fund when necessary.

Even if you're saving consistently for retirement, your money may not go as far as you think it will if you're not investing in the right places. By making sure your assets are allocated well and your portfolio contains just the right amount of risk versus reward, you can ensure you're making the most of every dollar.