Asset Allocation
In finance, asset allocation means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk. The simplest example of asset allocation is provided by the proverb "don't put all your eggs in one basket". Asset classes which can be considered for allocations are –
  1. Equities
  2. Bonds
  3. Precious metal like Gold & Silver
Historically these three asset classes have not moved in same directions. There are period like 2000-2003 where Bonds have delivered 100% returns in 3 years while equities have delivered negative return. From 2003 to 2007 equities have delivered 600% returns while bonds have hardly delivered any returns. In 2008 equities delivered -50% returns while bonds delivered +40% returns. Also we can have period like 2011 where both equities & bonds failed to deliver returns while Gold delivered +30% returns.

Historically it has been proven that 90% of the money is made by asset allocation and 10% by choosing right funds or stock within asset classes.
Returns expectation while Asset Allocation

As markets are unpredictable one will always have years where one asset class will outperform the others. By doing asset allocation the returns will always be between the returns of best asset class and worst asset class. Greed & fear can push people away from asset allocation strategies. Person who opts for asset allocation principal should be able to move away from noise of the market so that he does not get carried away with greed and fear of the market.