Asset allocation is the process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The purpose of asset allocation is to balance risk and reward by spreading investments across multiple asset classes that react differently to market conditions.
Proper asset allocation is an important part of a successful investment strategy, as it helps investors achieve their financial goals while managing risk. It is important to periodically review and rebalance asset allocation to ensure it continues to align with investment objectives and risk tolerance.
Many fund managers believe asset allocation is vital to a good investment strategy.