Strategic Asset Allocation is the process of customizing a diversified investment portfolio specific to one’s needs by combining different assets in varying proportions. An asset is anything that produces income or can be purchased and sold, such as stocks, bonds, or certificates of deposit (CDs). Asset classes are groupings of assets with similar characteristics and properties.

Examples of asset classes are large company equities, international equities, and bonds. Every asset class has distinct characteristics and may perform differently in response to market changes. The asset allocation decision is one of the most important factors in determining both the return and the risk of an investment portfolio. Therefore, careful consideration must be given to determine which assets you should hold and the amount you should allocate to each asset.

Factors that greatly influence the asset allocation decision are your financial needs and goals, the length of your investment horizon, and your attitude towards risk. Diversification does not guarantee against loss. It is a method used to help manage investment risk.