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Asset allocation is your plan for investing, the way you organize the investments in your portfolio between stocks, bonds, and cash. In other words, by diversifying your investments across different asset classes (like stocks and bonds, or, better yet, stock funds and bond funds), you could control the risk in your portfolio--and therefore control how much money, on average, you'd lose due to volatility. It turns out that the amounts you buy--whether it's 100 percent stocks or 90 percent stocks and 10 percent bonds--make a profound difference on your returns.