By Ben Carlson
A Wealth of Common Sense

Diversification is the process of spreading your bets among different asset classes, strategies, geographies, and holdings to reduce risk in your portfolio.

Asset allocation is the process of distilling that diversification into target weights.

Rebalancing is the process of systematizing your purchases and sales to stick to that asset allocation so you can earn the benefits of diversification.

Diversification doesn’t work without a coherent asset allocation and asset allocation doesn’t work without a coherent rebalancing process.

They all work hand-in-hand.

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The commentary is the opinion of the author and distributed with permission under limited license. All data and charts presented herein are from sources deemed to be reliable but are not guaranteed to be accurate. The financial information presented is for information and educational purposes and is not a substitute for professional advice; use of or reliance on any information herein is solely at your own risk. Edited from the original.