Like other experiences that link your reward to the 

risks you take, investing can be intimidating and 

exhilarating at the same time. 


Using asset allocation means that you invest your 

principal, on a percentage basis, in different types 

of investments, called asset classes, which put 

your money to work in different ways. The three 

major asset classes are stocks, bonds, and cash 

equivalents, including insured certificates of 

deposit (CDs) and US Treasury bills. Other classes 

include real estate and commodities.

Mutual funds and ETFs belong to an asset 

class based on their investments: stock funds own 

stocks and bond funds own bonds. Some funds, 

however, are grouped into a category called asset 

allocation funds because they invest in more than 

one asset class. Balanced funds, for example, own 

a blend of stocks and bonds. Target date funds 

change their allocation from a concentration in 

stocks to a concentration in income-producing 

investments, such as bonds, as the target date in 

their name—such as 2025 or 2035—gets closer.

Different asset classes tend to react in  

different ways to a shift in the economy or  

investment markets, such as a change in interest  

rates. Stock prices often increase when bond 

prices fall, and the reverse. If you own some 

Investment Strategy

The best investment decisions are made carefully, for logical reasons.


Once you’ve selected the accounts you’ll use to 

reach your goals, your next challenge is achieving  

positive returns on your investments in those 

accounts. That way, over time you’ll have the 

assets you need by the time you need them. 

Return is a measure of what you accumulate 

in relation to the amount you invest, called your 

principal. Your account value can increase in  

two ways—the prices you paid for investments 

can go up, and you may have interest or dividend 

earnings. You add the change in value to the  

earnings to calculate the return.

There is always the risk, however, that prices 

could fall, producing a negative return. If you sell 

when an investment’s value is down, you could 

lose some or all of your money, and miss out on 

any potential gains.

While investing always poses the risk of loss, or 

of getting a smaller return than you anticipated, 

there are two strategies you can use to help 

protect your portfolio against market gyrations 

or losses from specific investments. One is asset 

allocation. The other is diversification.

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