Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.

There is no magic formula that determines the right asset allocation for every individual. However, most financial professionals agree that asset allocation is one of the most important decisions that investors make.

Assets are typically allocated in stocks, bonds, and cash and equivalents, which can be one of the principal determinants of your investment results.