Understanding Asset Allocation
Asset allocation is the thoughtful use of assets (investment capital) to balance risk and reward across your holdings. Typically, investors have three classes of assets: securities, fixed-income assets, and cash. This is where you should start. More sophisticated forms of asset allocation add other classes of assets such as real estate, precious metals, and so on. The vast majority of investors need only concern themselves with the three basic classes. Diversification is often used as a synonym for asset allocation, but it has a more narrow focus.
Asset Allocation and Diversification
Asset allocation and diversification are both strategies to reduce risk. Asset allocation involves how all three asset classes work ...