What is Asset Allocation?
Asset allocation is an investment strategy that is used to choose among various asset classes such as stocks, bonds, commodities, foreign currencies, real estate, annuities and life insurance, and high value collectibles including precious metals.
Asset allocation as a way of investing is an important part of a person’s financial planning process that primarily concerns the very relationship of an investment portfolio’s risk and return. Different asset classes offer different risks and returns as long as their performances are not perfectly correlated (if they go up and down in the same market conditions). Asset allocation reduces the volatility of investment results when not all investments in the portfolio rise and fall at the same time.