Legal Definitions - asset allocation

Asset allocation is the process of dividing your money among different types of investments to reduce risk and increase potential returns.

For example, if you have $10,000 to invest, you might decide to put $5,000 in stocks, $3,000 in bonds, and $2,000 in real estate. This way, if one type of investment performs poorly, you won't lose all your money.

Another example is a retirement portfolio that is diversified across different asset classes, such as stocks, bonds, and cash. This helps to balance risk and reward, and can help ensure that you have enough money to retire comfortably.

Asset allocation is important because it helps you manage risk and maximize returns. By spreading your money across different types of investments, you can reduce the impact of market volatility and increase your chances of achieving your financial goals.