Asset allocation is sort a big picture in your investment portfolio and with it comes two questions
Which asset classes do you want in your portfolio?
How much of your money do you want to put in each?
Asset classes if you didn’t know are just groups of similar investments. And these groups are groups of stocks, bonds or cash (funds, saving accounts).
All the classes bring something different to your portfolio.
Stocks offer you for the most part one of the greatest potential for long-term growth but it also has a huge risk to it.
Bonds balance your portfolio and provides you with steady stream of income.
And cash comes down to the jam when your roof fails or lets you meet short-term goals like a down payment on a home.
Asset allocation is important because asset classes don’t move in tandem. And by investing in different classes you as an investor may be guarded against market volatility and gain flexibility.