Asset Allocation

The breakdown of where you’re putting your money. The three main asset classes—equities (stocks), fixed- income (bonds), and cash—have different levels of risk and reward, so depending on what your goals are for investing you want to balance the risk/reward by investing in varying amounts of each. For example, an aggressive investor may have an 80-20 asset allocation, putting 80% in stocks, which have greater potential for earnings but also greater risk, and 20% in bonds or cash, which have less earning power but are safer investments. The older you are, the less aggressive you’re likely to be since you’ll have less time over the long term to recoup any losses should any of your investments tank. (See also: Diversification)

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