Think about the assets you have. Maybe you have biceps like Channing Tatum or a smile like Beyoncé. Great, but not really relevant to this discussion.
Now think about your financial assets...like cash, real estate, stocks, and so on. Asset allocation is all about where you put your financial assets so that they make sense for you. If you're young, you might want to put a lot of your assets into stocks because you have lots of time for them to grow, and you want to make money more aggressively. If you're getting close to old geezerhood, you might want to invest in bonds or more stable investments because you and your ticker can't handle the shock of sudden market downturn.
The point is that asset allocation is all about putting your assets into the right combos to balance the risk of losing money against the possibility of making more dough. When you're older, you'll want lower risk, and when you're young and cute (and can put those Channing Tatum arms and Beyoncé smile to work), you'll want a better possibility of earning more. Generally: YMMV.
Related or Semi-related Video
Finance: What is asset allocation?1 Views
finance- a la shmoop. what is asset allocation? alright well we have one
basket, and we have all of our eggs and we have enemy boulders ditches and speed [girl holds basket]
bumps in our way. they're all out to get
us. and everything's fine as we walk along
the path of life until one day, yeah oops carnage. well how do you avoid whoops in
the land of finance? well there are a couple of key things to keep in mind and
in baskets. first investments in an of an asset class like oil or transportation
or commodities like cotton or technology like software, very roughly tend to all
move together like Canadian Geese in the spring. that is the price of oil
controlled by Royal Dutch Shell, correlates almost exactly with the price
of oil controlled by British Petroleum or BP. there are two different stocks but
they generally move in lockstep so if you invested in one company odds are [man sits on mossy bench]
good that its performance will have been very similar to that of all of its
competitors in the same oil producing space. oil is an asset and the notion of
intelligent asset allocation is that you want to diversify away risk in your
portfolio by diversifying the asset classes in which you put your dough. so
if you wanted to be broadly exposed to the S&P 500 with its dozen or two asset
classes, well you'd want to pepper your eggs in some semi even distribution may be across baskets in telecommunications real estate utilities retail insurance
banking and so on. such that when those potholes come along and you trip in one [eggs put in a line of baskets]
and you most certainly will and the basket ends up looking more like paper
when you stand up because you smushed it. well then you still have eggs to cook
from other baskets you put your money in. if that still doesn't work well maybe go
vegan. [girl stands in kitchen with empty basket and fruits on the counter]
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