It’s about diversifying one’s portfolio among asset classes such as bonds, stocks, real estate, or cash.

It’s referred to in terms of the target percentages for each asset class.  For example, a portfolio could have a mix of  “60 percent stocks, 30 percent bonds and 10 percent cash”.

It’s the financial representation of an investor’s personality: the ideal asset allocation is one that best balances an investor’s profile and objectives.

Dividing a portfolio over asset classes that do not move up/down at the same time helps bring down the risk of the portfolio.

Rebalancing helps investors enter equities at ‘lows’ and exit at ‘highs’ without having to ‘time’ the market

A periodic review of objectives can ensure an investor is not left at the mercy of the equity markets when he needs his money

Summing Up

Asset Allocation helps:
1.Control Portfolio Risk
2.Increase the predictability of portfolio returns
3.Steer the portfolio towards one’s financial goals