Asset allocation is an investment portfolio technique that aims to balance risk by dividing assets among major categories such as cash, bonds, stocks, real estate, and derivatives. Each asset class has different levels of return and risk, so each will behave differently over time.

For instance, while one asset category increases in value, another may decrease or may not increase as much. Some critics see this balance as a recipe for mediocre returns, but for most investors, it’s the best protection against a major loss should things ever go a miss in one investment class or sub-class.

• Asset allocation tries to balance risk by dividing assets among investment vehicles.
• The risk-return trade-off is at the core of what asset allocation is all about.
• Know your goals.
• Time allows you to take advantage of compounding and the time value of money.

The Bottom Line
There is no single solution for allocating your assets. Individual investors require individual solutions. Furthermore, if a long-term horizon is something you don’t have, don’t worry. It’s never too late to get started. It’s also never too late to give your existing portfolio a face-lift. Asset allocation is not a one-time event, it’s a life-long process of progression and fine-tuning.