Asset Allocation

Asset allocation refers to a principle of financial planning involving the determination of a mix of securities or assets and a plan of investment involving those assets that is tailored to and appropriate for an individual's financial circumstances, long range goals, and tolerance of risk.

Because asset performance varies widely on the stock market, asset allocation is a dynamic process and involves selecting several classes of investments whose combined earnings are more likely to achieve a given investment goal.

It is a general rule of investing that diversification is a means of reducing risk and achieving variability of returns. Asset classes include cash (such as those funds held in money market accounts), bonds, stocks, real estate, and precious metals among others.

When taken specifically for stock related investing assets classes would include the various levels of capitalization (large-cap, mid-cap, small cap) and the style of a given stock (growth, blend, value.)

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