What is asset allocation in investment management?

Asset allocation in investment management refers to the strategic process of dividing an investment portfolio among various asset categories, such as stocks, bonds, cash, and real estate. This approach is aimed at optimizing the balance between risk and reward based on an investor's goals, risk tolerance, and investment horizon.

By diversifying across different asset classes, investors can reduce the impact of a poor-performing asset on their overall portfolio. For example, if equities are performing poorly, the bonds in the portfolio may still provide steady income, helping to cushion losses. This diversification is essential for managing risk and seeking more stable returns over time. Proper asset allocation can help investors achieve their long-term financial objectives while aligning their investment strategies with market conditions and personal circumstances.