Asset Allocation is the way an investment portfolio is invested. Typically this is a portfolio of stocks, bonds, cash, real estate, etc. Asset Allocation is important because it spreads risk. An investor with 100% invested in energy or financials would be at 100% Asset Allocation in the financial sector. This is not a good place to be, because if financials tank, the investor stand to lose a bunch of money. My portfolio for example is 100% stocks, but I do Asset Allocation by not owning more than 10% of my portfolio value in a particular sector.
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