Asset allocation is the spreading of assets among different categories of investments, typically among stocks, bonds and cash. It provides protection against drastic market volatility and the corresponding fluctuations. When you allocate your assets you should have in mind different factors, the most important one being your risk tolerance.
Often believed to be one of the most important factors that may influence your chances of success in stock investing, many experts advise asset allocation to be practiced with the greatest caution.
When applying asset allocation you should concentrate on combining stocks, bonds and cash in different proportions. The process of asset allocation is the selection of the percentage by which each investment category will be present in your portfolio.
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