Every one knows the old saying, "don't put all your eggs in one basket." This certainly holds true for investment advice.

We may wish that we had put all of our hard-earned savings into an Internet stock a couple of years ago. But most of us understand that it is unwise to risk all of our money on one or even two individual stocks.

One investor might put half of her savings into the stock market, and she might have the other half in bonds. Another investor might put two thirds of his savings in the stock market and the other one-third in a money market fund.

What I have just described is called asset allocation.

Asset allocation is a fancy name for how you choose to divide up your savings into different types of investments. It can also be called diversification.

The principal guideline for asset allocation is your age. he stock market does go down as well as up. And, as your investment goals get closer, you should keep a larger portion of your savings in fixed income investments such as bonds.

So, if you are in your twenties or thirties, you might keep 80 percent or even 90 percent of your savings in the stock market. Because you are far enough away from retirement, you can weather the ups and downs in the stock market.

Since Americans are living longer, if you're in your forties or fifties, you should still have a lot of your money in stocks. Even retirees ought to have a certain percentage of their assets in the stock market in order to avoid "outliving" their money.

Another principle for determining how you should allocate your investments is the question of how soon will you need to use the money. If you have children who are just about to start college, or have other impending expenses, you may not have the luxury of waiting for an upturn in the stock market before you have to write the check. You need to have an appropriate amount of your savings in cash-like investments before the tuition bill arrives or the down payment on your dream house comes due.

Other factors that may determine how you choose to allocate your asset dollars are:
- how risk loving or risk adverse you are
- the age of the economic cycle
- and your investment philosophy

One final thought is that if you own a number of mutual funds, you may not be as diversified as you think you are. Look up on the Internet or in Morningstar reports to find out what stocks and bonds your mutual funds own. You may be surprised that there is a lot of duplication among your mutual funds.