Dividing Your Assets Between Stocks, Bonds and Cash

Step 1: Why Is the Allocation of My Assets Important?

At first glance, many investors assume that the basic asset allocation decision is easy. After all, at this level you are focusing on only three choices—stocks, bonds and cash (money market funds and short-term certificates of deposit).

While the choices are few, the way you allocate your portfolio among these three categories will have by far the greatest impact on your performance of any investment decision you make, assuming that you don’t violate the basic investment principles.

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