which one of the following decisions falls under the category of asset allocation?
determining that thirty percent of a portfolio should be invested in bonds
Asset allocation is the process of dividing an investment portfolio among different asset categories, such as stocks, bonds, cash, and alternative investments, such as real estate or commodities. This decision is made to help balance an investor’s risk and reward preferences with their investment horizon, goals, and overall financial situation.
Of the following decisions, the one that falls under the category of asset allocation is:
– Deciding to invest 60% of a portfolio in stocks, 30% in bonds, and 10% in cash.
This decision involves allocating a certain percentage of the investment portfolio to different asset categories, which is the essence of asset allocation. By diversifying the investments among different categories, the investor can potentially reduce overall portfolio risk while also aiming for a desired level of return.
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