An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets into a portfolio mix that is in line with a client's individual risk tolerance, time horizon and goals. Portfolio assets are spread between various asset classes such as stocks, bonds and cash, which potentially reduces the risk for an investor because allocating assets among different asset classes balances out the differing market volatilities of the various kinds of businesses in today's market. Allocating assets among different types of businesses can help create a strong portfolio that may prevent large swings in overall account value and potentially boost overall performance.

The chart below helps demonstrate this. The chart illustrates annual returns for various asset classes from 1987-2006. As you can see, various asset classes perform differently at various times. Keep in mind that asset allocation does not assure a gain and does not protect against a loss in declining markets.