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Asset Allocation Asset allocation is dividing your money into different asset classes, such as stable value, stock funds, or bond funds. Since these funds can experience gains and losses at different times, spreading your investments between funds can help balance fluctuations in your account performance. Having an effective asset allocation mix can be the most important factor in the performance of your retirement account.

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Portfolio Rebalancing Portfolio rebalancing enables you to control the risk level and minimize risk. The asset mix originally created by an investor inevitably changes as a result of differing returns among various securities and asset classes. As a result, the percentage you allocated to different asset classes changes.

Diversification Diversification is a technique used to control risk by investing in different types of mutual funds that would each react differently to the same event in the market. Your risks can be minimized through diversification. For example: your portfolio is heavily invested in airline company funds. It is publicly announced that airline pilots are going on an indefinite strike and all flights are canceled. Share prices of airline stocks drop. Your portfolio would experience a noticeable decline in value. However, if you counterbalanced funds weighted in the airline industry with funds weighted in the financial industry, only a portion of your portfolio would be affected.

Most investment professionals agree, although it does not guarantee against loss, diversification is a very important component of reaching long-range financial goals while minimizing risk.