Asset allocation is a strategy that you can use to construct an investment portfolio. Asset allocation isn't about picking individual securities. Instead, you focus on broad categories of investments, mixing them together in the appropriate proportion to match your financial goals, the amount of time you have to invest, and your tolerance for risk.
The basics of asset allocation
The idea behind asset allocation is that because not all investments are alike, you can balance risk and potential return in your portfolio by spreading your investment dollars among different types of assets, such as stocks, bonds, and cash alternatives.