What is Asset Allocation?
Asset allocation is diversifying your investments in various asset categories like stocks, bonds and gold to minimize risks and optimize returns. The principle of asset allocation draws from the time-tested adage: do not place all your eggs in one basket. By diversifying investments amongst various asset classes, investor can be safe guarded from the volatility in the market. Essentially, asset allocation is based on the premise that different asset classes perform differently in the given market conditions. For instance, stocks provide faster growth and income, but at higher risk, bonds provide stability and lower risk. The importance of diversification also stems from the inability to predict the performance of any asset class for a given time period.
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