Asset allocation refers to how a portfolio is divided up among the numerous types, or classes, of assets that are available to invest in. Among numerous available asset classes are U.S. stocks, bonds, foreign investments, and real estate. Careful selection of the asset classes that comprise a portfolio, as well as the individual investments within each asset class, is important to the ultimate performance of the portfolio. While there is some debate over the exact percentage of portfolio performance that should be attributed to asset allocation, there is general agreement among investment experts that asset allocation is an important determinant of portfolio performance.

Because asset allocation plays an important role in determining portfolio results, emphasis should be placed on allocating the appropriate classes of assets (e.g., U.S. stocks, bonds, foreign investments, real estate) to a portfolio. Only after determining the classes of assets you will invest in and the proper proportions of each asset class for your portfolio should you begin to analyze which individual investments (e.g., mutual funds, stocks, bonds) you will invest in.

Click here to open the Periodic Table of Asset Class Returns

The Periodic Table of Investment Returns conveys an enormous amount of information. The most important being the case for diversification, across investment styles (growth vs. value), capitalization (large vs. small) and equity markets (U.S. vs. international) is strong.