Asset allocation is an investment strategy that aims to balance risk and reward by dividing a portfolio's assets among different categories, such as stocks, bonds, and cash.

The process involves determining the percentage of assets to be allocated to each asset class based on an investor's:

• Investment goals
• Risk tolerance
• Time horizon

A well-diversified asset allocation strategy can help to reduce risk and improve returns over the long term.

The main asset classes are:

• Stocks: Represent ownership in a company and have the potential for high growth, but also carry higher risk.
• Bonds: Represent loans made to a borrower (government or corporation) and typically offer lower returns than stocks, but also lower risk.
• Cash: Includes money market accounts and short-term certificates of deposit (CDs), which are very liquid and low risk, but offer the lowest returns.

The allocation of assets may be adjusted over time in response to changing market conditions or changes in an investor's goals or risk tolerance.

For additional information, you can refer to these resources:

• Investor.gov - Asset Allocation
• Schwab - Understanding Asset Allocation