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When developing an asset allocation program you need to understand what your options are and what defines them.

Stocks
You can divide stocks into large, mid, and small cap stocks–strictly based on their market capitalization. Foreign companies are represented in international stocks. Owning some of each asset class you will lower your risk and help your portfolio’s performance in the long run.

Bonds
The U.S. government is the largest bond issuer in the world. The payment of interest and pricipal is backed by the U.S. Treasury. This being said, U.S. bonds are considered one of the safest investments in the world. Corporate bonds will typically offer a higher interest rate of return because their is a risk that the company could default. Municipal bonds are issued by state and local governments and any income made from this is exempt from federal taxes. International bonds are issued by foreign governements.

Cash Equivalent
Cash equivalents represent investments in short-term, high-quality securities like money market funds, Treasury bills, and certificates of deposit. These investments are much less risky and more liquid.

Real Assets
Real assets are those assets falling outside of traditional classifications of stocks, bonds, and cash equivalents. They have a value outside of the monetary units in which they are dominated and can help hedge against inflation.

1920-1929: Black Thursday, October 24, 1929 marks the beginning of the Depression. The market had shown signs earlier in the year of weakness.

1930-1939: By the summer of 1932 the stock market had lost 86% of its market capitalization

1940-1949: After WWII the U.S. is the only economic superpower and begins the shift from war-time economy to peace-time.

1950-1959: Time of steady, sustained growth.

1960-1969: Early in the 1960s a tax cut had spurred growth , but the financing of the Vietnam War and the Great Society set up stagflation of the 1970s.

1970-1979: Double-digit inflation, stagnant economy, high interest rates, high oil prices all of which went a long way to bring about the demise of the U.S. manufacturing sector.

1980-1989: October 19, 1987 stocks fell by more than 20%, but it regained those losses by 1989.

1990-1999: 1995-1999 marked the only time the market had returned more than 20% for five straight years.

The early 2000s have not ended, but factors like Septmember 11, 2001, the market downturn of March 2000, the War on Terror and the accounting scandals will probably dominate this era.