ABSTRACT
The stock market is in constant motion, responding to an ever-changing set of conditions. Economic and political factors such as interest rates, taxation policies, and the business cycle all influence the stock market along with international political factors and intangibles such as the psychology of investors. Asset allocation is the investment strategy of diversifying your investments among a variety of investment classes. Broad categories of investment classes include stocks, bonds, and cash. A strategy therapists commonly use in their retirement plans is that of combining dollar cost averaging with an asset allocation strategy. In the 1950s economist Harry Markowitz wrote about optimizing a portfolio through diversification. Dollar cost averaging involves continuous investment in securities, regardless of the fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels or changing economic conditions. Asset allocation does not guarantee a profit or protection from losses in a declining market.
