Building a Better Portfolio Diversification involves spreading money among multiple investments in such a way that gains in one area can help compensate for losses in another. Asset allocation is the way your investment dollars are divided among major asset classes such as stocks, bonds, and cash alternatives. It utilizes statistical analyses to measure how different asset classes tend to perform in relation to one another. The goal is to seek the highest potential return for your particular risk profile. Whether you know it or not, your assets have been allocated — perhaps in a single stock, in a savings account, or under the mattress. Choosing an appropriate mix of investments for your financial needs, time frame, and risk tolerance may be more challenging. Higher-risk investments typically have a higher potential for return; lower-risk investments generally have a lower potential return. The following basic investment techniques are often used to help manage risk and improve the potential performance of your portfolio over the long term.
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