Asset allocation is the next step in the investment process. Your asset allocation involves two steps:

  1. Decide which index funds to include in your portfolio.
  2. Choose how much of your portfolio to place in each one.

After you decide which investments to include in your portfolio, you need decide how you want to combine them. Your asset allocation has a much greater impact on your investment performance than the individual investments you pick.

The asset allocation process is as much about managing risk as it is about investment performance. In fact, the process lets you deliberately manage your risk.

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