Even if you are new to investing, you may already know some of the fundamental principles. How did you learn them? Through ordinary, real-life experiences that have nothing to do with the stock market. For example, have you ever noticed that street vendors often sell seemingly unrelated products, such as umbrellas and sunglasses? Initially, that may seem odd. After all, when would a person buy both items at the same time? Probably never—and that’s the point! Street vendors know that when it’s raining, it’s easier to sell umbrellas, but harder to sell sunglasses. And when it’s sunny, the reverse is true. By selling both items—in other words, by diversifying the product line—vendors can reduce the risk of losing money on any given day. In investing, this concept is called asset allocation, which simply means dividing your money among different asset classes such as stocks, bonds, alternative investments and cash. (Asset allocation does not ensure a profit or protect against a loss.)