From Insurance Lounge

Asset allocation is an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investors risk tolerance, goals and investment time frame.
(Source: Investopedia, Asset Allocation Definition)

Asset allocation is an important factor in determining returns for an investment portfolio. It is based on the principal that different assets perform differently in different market and economic conditions. Different asset classes offer returns that are not perfectly correlated, so diversification reduces the overall risk of the portfolio.