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What's the difference between asset allocation & diversification?

When it comes to investing, asset allocation is the equivalent of deciding how many of your eggs you're going to put into how many different baskets—or asset classes. Diversification is the spreading of your investments both among and within different asset classes.

Do diversification and asset allocation guarantee a profit?

Diversification and asset allocation do not ensure a profit or guarantee against loss. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

What is diversification & why is it important?

Diversification is a common investment strategy that entails buying different types of investments to reduce the risk of market volatility. It's part of what’s called asset allocation, meaning how much of a portfolio is invested in various asset classes. Three of the most common asset classes are stocks, bonds and cash (or cash equivalents).

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