Yet each investment also carries some risks, making it important to choose wisely if you are selecting just one. The good news is that there's no rule that says you must stick with only one type of investment. In fact, you can potentially manage your investment risk and enhance your chances of meeting your investment goals by practicing diversification. Asset allocation refers to the way in which you weight diverse investments in your portfolio in order to try to meet a specific objective. Points to Remember Asset allocation is the way in which you spread your investment portfolio among different asset classes, such as stocks bonds and money market securities.
Mutual funds are pools of securities, usually offering diversification within a single asset class.
Some mutual funds may include several asset classes. The asset allocation that is right for you depends on your investment time frame, goals, and tolerance for risk. As your investment time frame and goals change, so might your asset allocation. Asset Allocation is a sophisticated method of diversification which position funds among major investment categories. This tool can be used in the effort to manage risk and enhance returns, it does not guarantee a profit or protect against loss.