Answer: This is a process in which someone decides how to distribute his/her investment dollars across many asset types. When applying this strategy, it is usually common to choose bonds, stocks, and cash alternative to allocate the money. Ideally, the purpose is to lessen the volatility while boosting the return of investment. Have you heard the saying: "don't put all your eggs in the same basket"? Well, that is precisely what the asset allocation system does.