Asset Allocation

Asset allocation isn't just for the wealthy. It's very important for investors in 401ks, or in any other basket they use to buy bonds, stocks or real estate. It doesn't need to be complicated, unless someone is trying to sell you their investment services, then it needs to seem very complicated so you'll throw up your hands and tell them to do what they think best. Too often, what they think best is best for them, not you.
Asset allocation is how you divide up your investments, into what types of investment. There only a few choices.
Money Market Funds, or what's referred to as "cash." Money you can get at quickly with no loss of principal.
Bonds, one year maturity or longer. There is no point in buying 90 day treasury bills, or 6 month CD's. Just use a money market fund. If you're the really tense type, use a government bond money market fund. If you're that tense, then the rest of the investment choices don't matter, you shouldn't invest in them if you're temperamentally timid.
Stocks. I'll show you how, in later posts, to buy a truly diversified stock portfolio, that you don't have to pay either a broker for or a "manager" to play with.
Real Estate. For most people their house is their real estate. That's fine, you need a place to live, but it's hardly diversified. I'll tell you how to have a diversified real estate portfolio without the hassle of management, paint or toilet repairs.
I do not include any other forms of "hard" assets in my asset allocation model. Commodities, diamonds, gold or coins, stamps or art are all things that interest some people. Those are hobbies, not investments, despite what the guy who's trying to sell you gold coins says. Anything you have to "store," or that doesn't have a ready market, or a reasonable, clear cut way to determine actual value, isn't an investment. Stocks, and sometimes bonds, can be speculative enough. There's limited to no likelihood you're going to develop enough expertise in coins or art to make those things profitable in a financial sense. If you like to look at the pretty pictures, go for it, but it's not a source of retirement income.
That leaves us with the basic four categories, cash, bonds, stocks and real estate. Only you can decide the next step. Sorry.
Cash and bonds, at least the kind I recommend, don't have risk in the sense of losing your original investment, the principal. Stocks and real estate go up and down, unpredictably, despite what some market prognosticators want you to believe.
So here's your first decision. How much of your money do you want invested in the things that go up and down unpredictably? Is it half, 30%, do you want to bet most of the ranch and make it 80%? You make this decision by the sleep factor. If you can invest all your money in stocks and no amount of market gyration keeps you up at night, then do it. If that bothers you, then reduce the percentages in stocks until you can get enough sleep. If you're married, then there are two sleep factors. I know your spouse is neither as fearless nor as intelligent, but if he or she can't sleep with the portfolio, I promise you it won't be worth the fight. Reduce the risk until everyone is happy, the divorce will cost more than the extra returns.