Asset Allocation Collection (Trading, Finance, Personal Finance, Portfolio and Investment Management)

Asset allocation is a technique used to spread your investment dollars across several asset categories. Stocks, bonds, and cash or cash alternatives are the most common components of an asset allocation strategy. However, others may be available and appropriate as well. The general goal is to minimize volatility while maximizing return (though asset allocation alone can't ensure a profit or eliminate the risk of a loss). The process involves dividing your investment dollars among asset categories that do not all respond to the same market forces in the same way at the same time. Though there are no guarantees, ideally, if your investments in one category are performing poorly, you will have assets in another category that are performing well. The gains in the latter will offset the losses in the former, minimizing the overall effect on your portfolio. Remember that all investing involves risk, including the possible loss of principal, and there can be no guarantee that any investing strategy will be successful.

According to David Swensen (legendary portfolio manager) there are only three tools for reducing your risk and increasing your potential for financial success: 
1. Security selection—stock picking;
2. Market timing—short-term bets on the direction of the market; and
3. Asset allocation—your long-term strategy for diversified investing.
“Overwhelmingly, the most important of the three is asset allocation. It actually explains more than a hundred percent of returns in the investment world.” How could it be more than 100%? Because those fees, taxes, and losses that come along with stock picking and market timing put a drag on your profits.

Enjoy and seed!