Essentially, asset allocation diversifies your portfolio among several distinct classes. These include stocks, bonds, real estate, money markets, cash and more. Conservative bonds generally include federal and state government bonds. Moderate-risk bonds include bonds issued by corporations. High-yield bonds typically are issued by corporations, offering higher interest rates to investors in exchange for a commensurate level of risk.
Stocks are securities that represent ownership in a company.
You might want to invest in stocks if you believe the price of the stock will increase and thereby the value of your investment will increase. Another reason to invest in stocks would be to collect dividends. Companies pay dividends as a way to compensate shareholders for their investments. Dividends can also be a way to generate income. Bonds represent a loan to a company or other entity.