Investing 101

The idea of a rabbit putting his eggs in a bunch of baskets plays in the investing world as well. You will probably not be right all of the time.

Asset allocation usually refers to the value of diversifying your portfolio so that it is more “stable” over time. To illustrate, consider the technology sector of the S&P 500. And this.

Looks like the Rocky Mountains at sunset, right? But it has been a good sector over time. If you’d invested $100 in 1960, you'd have yourself quite the nest egg today. But boy, you would have gone through some very bad times along the way. 

That’s why you diversify your investments or “allocate your assets” into a range of categories… so that you smooth out those peaks.

Next Page: The Standard & Poor's 500
Previous Page: Emerging Markets