After you’ve discussed your financial goals and reviewed your assets, you need to know how those assets will be allocated. Asset allocation refers to the diversification of your portfolio across different asset classes – namely equities, fixed income, cash, and perhaps “alternative” investments. Asset classes have different risk and return characteristics, and part of the work of a financial Advisor should be determining which mix of assets is most likely to help you reach your financial goals. Determining your asset allocation is one of the most important investment decisions, as time-tested studies have shown that the stock/bond ratio accounts for the vast majority of the change in portfolio value over time. Your asset allocation should be based on several factors that are specific to you, such as the purpose of the portfolio, the time horizon of goals, cash flow requirements, liquidity needs, and tax considerations.