What is asset allocation and how to choose for your portfolio?

There are certain terms that are very frequently used in the personal finance space. The technical definition of asset allocation is “Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. Asset allocation becomes important for long term goals like retirement or even for managing a large corpus where the primary objective is to increase the wealth. Asset Allocation is also a factor of future market outlook, if as an investor you think equity is overvalued you can keep the allocation low towards equity. Three major points to consider asset allocation - Risk Appetite, time horizon of investments & future market expectations.