Asset Allocation and Diversification Explained
Where there is money, there is always risk. Any investment can suffer a loss, and the value of a pure cash position will be subject to gradual erosion by inflation. While risk cannot be eliminated, it can be adjusted to suit an individual’s specific investment objectives. The concepts of asset allocation and diversification play a key role in determining these risk parameters. Even if you are new to investing, you must have some idea of the principles behind them; after all, they have been around for thousands of years. In this article, we will provide an overview of the concepts of asset allocation and diversification and how they relate to modern money management strategies. What is asset allocation and diversification? The terms “asset allocation” and “diversification” are often used interchangeably. However, they differ slightly in terms of risk management. Asset allocation is used to describe a money management strategy that outlines how money should be allocated to the vari...