Asset Allocation is a phrase that’s frequently thrown around by the financial press and financial advisors. It refers to the mix of investments in an account or group of accounts and is frequently shown in a pie chart. It is often done at a very high level, meaning the mix of the broadest categories of investments, such as stocks, bonds, and cash. It might be further broken down by types of stocks, such as large-company stocks or foreign and domestic stocks; bonds might be broken down by short-term, intermediate-term, and long-term. Asset allocation is important because it may provide an approximate view of the amount of volatility likely to be experienced and/or it can give an idea of one’s diversification.
