You’re probably already really good at allocation— just think about how you divide up your time. You need to spend a few hours on homework, a few on sports or exercise, and some time when you can just chill. Well, investing can be the same kind of balancing act.  You divide the money you have into different kinds of investments.

That’s because just like people, investments can’t be winners at everything all the time. Some years stocks do better, and sometimes bond returns win out. In fact, it’s often the case that when one asset class is not doing so well, the other kinds offer good returns – and vice versa. Asset allocation can also mean that you’re earning the greatest possible return year after year on the amount of money you have available to invest.

Diversification is another way to be sure all your eggs aren’t in one basket. To offset any risk that one investment, or investments in a certain kind of business, will do poorly, it’s a good idea to put your money into a variety of investments. That makes it easier to balance the bad with the good.