A healthy mix
Asset allocation refers to the different weightings of stocks, bonds and cash in your
portfolio. Because these three asset classes have tended to have varying rates of
return and risk profiles, asset allocation plays a role in helping you achieve your
Diversification takes this process one step further by spreading your money across different investments within the same asset class. Rather than trying to figure out which type of stock or bond will perform best, you’ll invest in many types. Over time, the ups of one investment have the potential to balance out the downs of another, with the goal of reducing the risk level in your portfolio.