In a nutshell,

asset allocation blends the characteristics of the three classes of investments

to improve the chances of achieving a desired total return.

To determine

what percentage of your investment dollars should be put into each of

the three investment categories, you need to consider your investment

goals, as well as your tolerance for risk and time horizon.

For example,

because a young person saving for retirement has more time to recover

from market downturns, he or she can pursue potentially higher returns

That same allocation

strategy could prove to be disastrous for a couple soon facing their children's

college tuition payments.

When structuring

your asset allocation, it is important that you consider all of your investments,

including those in tax-deferred accounts such as 401(k) plans and investment

retirement accounts, or IRAs.

As you progress

through different stages of your life, your asset allocation needs to

change along with your circumstances. As you get older, you're likely

to adopt a more conservative investment strategy oriented toward preserving

capital and earning current income

Allocation

and diversificationgo together

Many investors

tend to confuse asset allocation with diversification. Asset allocation

refers to the process of dividing your investments among the three asset

classes, while diversification involves allocating your portfolio dollars

among different investments within each of the major asset categories.

You can accomplish

diversification in several ways. You might, for example, diversify the

investments in your stock portfolio by choosing both domestic and international

stocks, large and small capitalization stocks, or growth and value stocks.

For more information,

access the Web site at www.gscpa.org

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