If you’ve ever worried: “Where is my investment money going?” then you’ve thought about asset allocation.

Fear that you might have too many similar stocks or too much money in bonds? Asset allocation. Debated the value of certain investment types, like small caps versus large caps, or stocks versus bonds for your long-term strategy? Asset allocation again.

Asset allocation is just technical jargon for how you’ve spread your money among different types of investments. Planners often look at it in terms of fractions or percentages of your total investment portfolio, such as 75 percent stocks and 25 percent bonds.

“What we find is that people don’t really understand what asset allocation means,” says mark Berg, CFP, national board member of the National Association of Personal Financial Planners and the president of Wheaton, Ill.-based Timothy Financial Counsel Inc.

Too many times, investors believe it refers to the number of investments or funds they use, rather than the types of assets they are buying.

For example: An investor saving for retirement splits his 401(k) money between five different stock funds. But each fund focuses on Fortune 500 stocks. That means his asset allocation is not only 100 percent in stocks but 100 percent in the same type of stock — large companies (or large caps). As a result, his retirement comfort rests solely on whether that portion of the market goes up or down.

Financial planners instead recommend spreading investments between a number of asset types (often called “asset classes”). a few of the asset classes you might see: small-cap, midcap and large-cap stocks; domestic and international stocks (international stocks will also distinguish between developed and emerging market stocks); value stocks; growth stocks; short-, intermediate- and long-term bonds (which include Treasury bonds, corporate bonds; municipal bonds and CDs); real estate and commodities.

“Asset allocation is more important than ever before,” says Kathleen Miller, CFP, president of Miller Advisors Inc. in Kirkland, Wash. “What it’s saying is that we know not all investments go up at the same time.”

Finding the right mix of different assets can give you the diversity to protect your money for the long haul through any market, she says.

You need a planAsset allocation is the key to successful long-term investing.

“You have to have a plan in the first place, and that plan should anticipate these bear markets,” says Larry Swedroe, author of “Wise Investing Made Simple,” and principal with St. Louis-based Buckingham Asset Management.

A plan will keep you from reacting out of fear. “It gives you a road map for staying on track,” says Karen Altfest, CFP, vice president of L.J. Altfest & Co., a New York-based fee-only financial planning firm.

“Any time you get into periods of high volatility, people get upset,” says Peggy Cabaniss, CFP, president of HC Financial Advisors in Lafayette, Calif., and past national board chair for the National Association of Personal Financial Planners. “You need to plan ahead and pick an allocation you’re comfortable with.”

asset allocation | investing options advice