chapter 3

The Building Blocks of Asset Allocation

There are two core assets that are considered the basic building blocks of asset allocation: stocks and bonds. In this chapter, we’ll explore both assets in detail.

Your Stocks

Stocks are often the first thing people think of when they consider investments.

What They Are

When you buy a stock, you are literally buying a stake in a business. That’s why stocks are also referred to as equities, because shareholders have a literal equity stake in the company whose publicly traded shares they hold.

Now, you may only own 50 or 100 shares of a particular company, and that firm’s ownership may be split among 10 million or 100 million shares. So from a voting standpoint, you have little sway over the ...

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