Asset allocation is essentially an official term for what you intuitively know is a healthy investment practice. For starters most households are likely to own some property and gold. That is diversification in asset allocation. You allocate the money you have across more than one asset like property, equity gold in different amounts. Sometimes the purpose of asset allocation can differ. There is a strategic allocation which considers your overall objective of investing. For the more adventurous investors, often a tactical asset allocation is present. This looks at near term market trends and allocates a proportion of the overall wealth into different assets based on opportunistic trends. Most of us however, need only worry about our strategic allocation meant to address the primary financial objectives.