Which term denotes dividing investments among different asset types such as stocks, bonds and cash?

• A. Asset Allocation
• B. Diversification
• C. Market Risk
• D. CD

Answer: (A)

Dividing investments among stocks, bonds, and cash is asset allocation. This is about choosing the broad mix of major asset classes to fit your goals, time horizon, and how much risk you’re willing to take. By setting target weights to equities for growth, fixed income for income and stability, and cash for liquidity and lower volatility, you create a framework that guides how the portfolio behaves in different market environments. Diversification, on the other hand, is about spreading your holdings within those asset classes to reduce risk from any one security or sector, not about the overall mix of asset types. Market risk is the broad risk that affects the entire market, not the act of distributing investments across different asset types. A CD is simply one instrument within cash investments, not the concept of dividing the portfolio among asset types.