"What's your major?" Think back to your school days. You took courses in everything from math to language, and science to social studies. Your learning was well diversified. But, you had to declare a major, too. That's where you put a majority of your attention … but not all of it.

Deciding where to place emphasis is what asset allocation is all about. It's based on your personal interests, and situation, your time of life , and your risk tolerance.

As a retiree, you may want to put emphasis on creating income. So, you might allocate a healthy portion of your assets to bonds, income-oriented stocks, and CDs. That’s okay for emphasis, but smaller chunks of your money should be held in (perhaps) a plain old bank account, so you can easily get cash. You also may want to put a small chunk of money into a longer-term investment with appreciation potential so you have potential growth to cover cot-of-living increases, increased medical costs etc.

"Let's see how asset allocation plays out" Asset allocation can be different for everyone. But let me show you five scenarios based on how much risk an investor is willing to take.