Generally speaking, asset allocation accounts for 80% of your portfolio’s overall returns. Simply put, greater attention should be placed on your asset allocation than any other single factor to do with your investments.
Diversifying our investments across asset classes allows us to reduce our overall investment risk. Markets will always move in cycles and over certain time periods, different asset classes will outperform others. For example, in a low interest rate environment term deposits and other fixed income instruments tend to be overlooked in favour of higher return asset classes. When certain asset classes are not performing well, if you have diversified your portfolio correctly you should not be in a position of panic because your other investments will be performing well. This will act to ensure the overall performance of your portfolio.