Asset Allocation is your master plan for building and managing your investment portfolio. You decide how much to invest in different investment categories. Maybe you buy some stocks, a few bonds, a lot of cash or cash equivalents. And — this is key — how much of each you choose has a major impact on your investment return. Why? All asset classes do not behave equally. A market that produces strong stocks may be a blow to bonds. If you allocated your investments across the board, your slumping fruit stock may be offset by your chip bonds going gangbusters. Step one: Choose which asset classes you want in your portfolio. Then: Consider what percentage of your portfolio you want to allocate to each of these asset classes. And that concludes Asset Allocation 101.
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