The essential goal of asset allocation is effective diversification. In other words, it isn't enough to spread our eggs around into several baskets. The key is to select the right baskets and know how many eggs to entrust to each. Asset allocation is the balancing of investment funds, or market segments, among the various categories of assets.
Asset classes can be as simple as cash equivalents, stocks, and bonds.
Asset allocation affects both risk and return, and is a central concept in personal financial planning and investment management.