"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 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.