Software Bonds and Stocks

Asset allocation is a concept of determining and maintaining a plan of investment in terms of a chosen mix of investments in different assets.

A large part of financial planning is finding an asset allocation that is appropriate for a given person in terms of their appetite for and ability to shoulder risk. This can depend on various factors; see investor profile.

Asset allocation in a nutshell

Inherent in asset allocation is the idea that the best-performing asset varies from year to year and is not easily predictable. Therefore having a mixture of asset classes is more likely to meet your goals. A more fundamental justification for asset allocation is the notion that different asset classes offer non-correlated returns, hence diversification reduces the overall risk in terms of the variability of returns for a given level of expected return. Palm - Software Connection. In this respect diversification has been described as "the only free lunch you'll find in the investment game. " Academic research has painstakingly explained the importance of asset allocation, and the problems of active management. (see academics) This explains the steadily rising popularity of passive investment styles using index funds.

Examples of asset classes