Asset Allocation & Diversification

Asset allocation is an investment strategy designed to reduce risk and enhance your return, by spreading your money among the three major asset classes – stocks, bonds and cash.

Diversification refers to how you spread your money among the sub-asset classes. For example, stocks are one of the three major asset classes; however, within this asset class you have various sub-asset classes such as large cap, small cap, mid cap, blend, growth, value, domestic, international and emerging stocks. Bonds, another major asset class have their own sub-asset classes such as government, municipal, corporate, domestic, international and emerging market debt bonds. If you’ve heard the saying, “don’t put all your eggs in one basket”, diversification is what they’re referring to.