Asset Allocation simply means to have different asset classes in your portfolio. To work best, your asset mix should be periodically reviewed and re-balanced if necessary. To diversify your investments simply means investing across a mix of asset classes, rather than investing all of your money in just one asset class. So, if one asset class is performing poorly, this will most likely be offset by the returns of other better-performing asset classes. In this way, you are spreading the investment risk.
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