"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 horizon, and your risk tolerance.

Let's say you like risk and have decades to invest. You may want to allocate the majority of your assets to higher-risk vehicles such as small-cap stocks, high-yield bonds, and international funds. That's okay for emphasis, but smaller chunks of your money should be allocated to less risky investments (for example, CDs, blue-chip stocks and government bonds) for diversification.

"Let's choose a major for you." Should you major in Large Cap Growth and minor in Bonds? Or vice versa? There's no one right answer for everyone. Each type of investment (also referred to an "asset class") offers a different balance of potential risk and return. So you'll probably want to include a mix of different asset classes to create the right balance for your portfolio. Let me give you a quick primer on the different asset classes.