It refers to implementing specific techniques to balance risk in a portfolio. You might divide assets into categories, such as bonds, stocks and real estate.

Each type of investment "behaves" differently, so any downturns in one asset may be overcome by the success of another asset. It can protect you against loss and can remain one of the most important decisions you can make about your investments.

1. Set specific goals. The more specific you can be in outlining your exact goals, the better you can allocate your assets.
2. Identify your risk profile. Just ask yourself this question: How squeamish do you feel about losing money in general?
3. Choose the correct strategy. You want to choose the right strategy in order to achieve all of your financial goals — including goals in the short term and in the long term.
4. Acknowledge your financial experience (or lack thereof). Can you make sound decisions that reflect your risk tolerance and goals? If not, you need to hire a fiduciary financial advisor to help you.