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Got $1K to Invest? Think Asset Allocation

If you've got $1,000 you're just itching to invest, I have two words for you: asset allocation.

Instead of immediately earmarking your cash for a specific purpose, it might be best to take a step back first and look at where you've got your money already.

Here's why: depending on your age and your risk tolerance, you might be best served to put that money to use in a certain place -- such as stocks, bonds or cash -- where you don't have as much money as you probably should.

That's where asset allocation comes in, because it's the concept of making sure your money is spread out among different types of investments that balance risk and reward in the way that's right for you.

Your own particular allocation will vary, mostly by age; if you're 25, you have a much longer time horizon in which to make up losses from risky investments (like if you would have invested in former high-fliers like Krispy Kreme (KKD - Get Report) or Crocs (CROX - Get Report) before their stock prices tumbled precipitously) than you do if you're 75.

Cramer: Crocs Is Over (Video, Aug. 6)

To watch the video, click the player below:

It will also vary by your risk tolerance, because even if you're young, if you can't stand to see your assets decline too much in value, you may want to invest more conservatively, weighting your assets toward such investments as Treasuries and funds with an emphasis on income and asset preservation. And, it may change based on any expected major life events, such as buying a house or having children.

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