What Is Asset Allocation?
Ask any pastry chef or baker: What would happen if you gathered together all the best ingredients in the world—vanilla from Madagascar, chocolate from Oaxaca, Échiré butter from France—but failed to take the time to mix them together properly? You’d end up with an expensive but decidedly disappointing dessert, right? Ask any construction worker: What would happen if you were to combine water, sand, and cement together, but in incorrect proportions? You’d most likely get a weak batch of concrete, and a potentially dangerous foundation for your structure.
In a nutshell, that’s what asset allocation is all about. It is the process by which investors can build a safe, solid foundation for their investment portfolio ...