Good asset allocation is the key to good investment. Achieving the right balance of assets in your portfolio can not only help you sleep more soundly at night, but also help best ensure your financial future. To do this, you will need an asset mix that is consistent with your risk tolerance and long-term investment goals.
In a sense, asset allocation is like making wine. Just as a wine maker blends different grape varieties to achieve a flavour appealing to certain tastes, an asset allocator blends different asset types or 'classes' to achieve a portfolio risk and return profile that best meets an investor’s needs.
It is generally not possible to boost a portfolio’s expected return without also assuming higher short-run risk or volatility in these returns. That said, a better trade-off between risk and return is possible through good portfolio diversification.