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Asset allocation helps you in diversifying your portfolio. The ultimate aim of asset allocation is to help you reach your financial goals. Basically it is the process of allocating your funds to various types of investments such as mutual funds, bonds, stocks, etc. By diversifying your cash reserve among various types of investments, you'll be able to lower your investment risks. With luck and clever asset allocation tactic, you can even make a lot of money.
it tells how investor distribute their investments in different segments and also describes how investor arranges their portfolios
You will often see most financial experts recommend people to diversify their investment portfolio as this is an extreme necessity. Investment experts have shown that 90% of the variability of a portfolio is due to proper allocation of assets and this means that 10% of the performance of the portfolio is due to the individual holdings while 90% is decided by how you've diversified your assets.
Divide your investments among different categories like bonds, stocks, mutual funds and cash equivalents so that you can keep gaining profits from one asset while the other is going through a rough phase. This will ensure maximum profits and minimum risks. Hope you got it clear..!!