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The Finer Points of Asset Allocation

A sound portfolio management strategy begins with asset allocation, dividing your investments among the major asset categories of equities, bonds, and cash. Then, you can make finer distinctions within each broad category. For example, within the equity category, you could diversify among large company stocks, small company stocks, international stocks, and an extensive range of mutual funds; within the bond category you could separate short-term and long-term bond investments.

Since the various investment categories have unique characteristics, they rarely rise or fall at the same time. Consequently, combining different asset classes can help reduce risk and stabilize the long-term return of a portfolio. Bear in mind, however, that past performance is not indicative of future results. Investment return and principal value of mutual funds will fluctuate due to market conditions, so that shares, when redeemed, may be worth more or less than their original cost.

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