What is Asset Allocation?

Balancing Risk and Reward through Asset Allocation

We would all like to find investments that always had high returns with no risk of downturns. But the facts are plain; all investments carry with them a certain amount of risk. This year's hot investment may be next year's bust. While time in the market, security selection and other factors influence long-term performance, asset allocation is accepted as the number one determinant of investment performance.¹

Managing Market Volatility

Asset allocation is the process of investing in a combination of asset classes to create a diversified investment portfolio. An asset class is an investment category composed of securities that share similar characteristics, such as stocks, bonds and cash.

Asset allocation and diversification² are strategies employed to offset the effects of volatility, a risk inherent in most investments. By allocating your assets among different investment classes, overall volatility in your portfolio may be reduced. Simply put, the returns from one type of investment can help offset risks from another. But as with any investment strategy, diversification does not assure a profit or protect against loss in a declining market.