Asset allocation is the process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The goal of asset allocation is to diversify the portfolio and manage risk, by choosing a mix of assets that has the potential to provide a good balance of return and stability.
Different asset classes have different risk and return profiles, so by allocating assets among different categories, an investor can potentially reduce the overall risk of the portfolio while still maintaining the potential for growth.
Asset allocation is a key element of investment strategy, and it is important for investors to periodically review and adjust their asset allocation in order to ensure that it remains consistent with their goals and risk tolerance.