Asset Allocation

This is an attempt to balance risk vs. reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment timeframe.

Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. Its use depends on the notion that different asset classes offer returns that are not perfectly correlated. Therefore, diversification reduces the overall risk in terms of the variability of returns for a given level of expected return.