Asset allocation is the strategy of dividing investments across different asset classes such as stocks, bonds, real estate, or crypto to balance risk and reward. Proper allocation reduces exposure to any single market downturn and aligns with an investor’s goals, time horizon, and risk tolerance.
Example:
An investor allocates 60% to stocks, 30% to bonds, and 10% to Bitcoin. If stocks fall, the portfolio is cushioned by bonds and crypto exposure.