Which of the following describes 'asset allocation'?

Asset allocation refers to the division of an investment portfolio among different asset categories, such as stocks, bonds, and cash equivalents. This strategy is essential for managing risk and optimizing returns based on an investor's risk tolerance and financial goals. By diversifying across various asset classes, investors can potentially reduce the impact of poor-performing investments on their overall portfolio, as different assets often react differently to market conditions.

Effective asset allocation considers factors like market conditions, economic outlook, and individual financial objectives, allowing the investor to maintain a balanced approach to risk and reward over time. This foundational concept is crucial for financial advisors as they develop customized investment strategies for their clients.

The other options focus on specific aspects of investment management that don't encompass the broader strategy of asset allocation. For instance, choosing individual stocks pertains to stock selection rather than distribution among asset categories, analyzing financial statements relates to assessing a company's performance, and timing investments involves market timing strategies instead of systematic allocation among different assets.