What is Asset Allocation?
Asset allocation simply means how money is spread across different asset classes. The goal of effective asset allocation is to develop an appropriate mix of investments that maximises performance potential in line with your objectives and investment risk profile.
Asset allocation is an effective way of reducing the fluctuations of an investment. Although asset classes work differently, they are largely dependent of each other. This means that if one is increasing in value, another may be decreasing.
Diversification means having different kinds of investments, such as cash, bonds and equities. It also means having a mix of investments in different sectors or industries. In simple terms diversification means that you ‘don’t put all your eggs in one basket’.
Diversification can help you manage risk effectively because the more you diversify the less you depend on the performance of any one investment.