A number of variables are considered in order to determine an appropriate asset allocation. Asset allocation refers to the various types of investments or asset classes that will be used to construct your portfolio. There is a reason that so much time and attention goes into this part of the process. It is one of the most important investment decisions people can make.
Asset allocation contributes more to long-term rates of return than security selection, market timing or taxes. Asset allocation is also one of the few variables that can actually be controlled.