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Difference between Asset Allocation and Diversification

by Chris Cooper, Financial Planning Expert
January 25, 2018

Question: What is the difference between asset allocation and diversification? 

Answer: Asset allocation uses diversification as a part of its strategy of allocating investable assets that don’t behave the same way when the stock (or other markets such as real estate, bonds, precious metals) market goes up or down.  It is a method of risk reduction in and academically has been proven that the majority of returns is based on asset class selection and NOT stock picking.

Chris Cooper is the owner and founder of Chris Cooper & Company, Inc., a fee-only financial planning firm for elderly persons and the owner and founder of ElderCare Advocates, Inc. a private geriatric care management and long term care consulting firm. As a California Licensed Professional Fiduciary, Chris can serve as  Conservator of the Person and Estate under court appointment,  as Agent under a Durable Power of Attorney for Financial matters and Health Care matters.

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