Definition of "Asset Allocation"

The allotment of investment funds amongst various types of assets such as cash equivalents, stock, fixed-income investments, real estate, and precious metals. It also applies to sub-classifications such as industry groupings of common stocks and government, municipal, and corporate bonds. Asset allocation affects both risk and return.

A financial strategy for investing money in a variable annuity into various asset classes ? such as stocks, bonds and cash ? based upon your financial goals, risk tolerance and time horizon. Asset allocation has two main advantages: it can help increase investment returns and reduce risk.