Asset allocation is the specific mix of investment instruments that an investor holds in a diversified portfolio. There are many different investment vehicles (asset classes) including stocks, bonds, real estate, gold, silver, commodities, etc. Asset allocation is the process of deciding how much of each type of investment across all asset classes should be held. For instance, should a portfolio have 30% in stocks, 50% in bonds, 10% in commodities, and 10% in real estate or is some other mix more desirable?
The asset allocation model each investor chooses will be based on the amount of risk they are willing to accept as well as the time frame of their investments.
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