Asset allocation is the practice of balancing risk and reward for your individual circumstances and objectives. However, it can be difficult to forecast risk and reward for each investable asset class and determine the appropriate asset allocation. Each asset class can go through stretches where it is the best or worst performer over months, years, or even decades. Diversification can be a tool to manage this uncertainty. As certain asset classes perform better than others, depending on the particular economic environment, diversification may provide protection against being overly concentrated in a single asset class that suffers a major loss. This protection may provide smoother returns over time. For more information, please read this article from FINRA: http://www.finra.org/investors/asset-allocation.
Consider your long and short-term goals when determining your investment selections. If you don’t include enough risk in your investment selection, your return may not meet your goal. If you include too much risk in your selection, the money for your goal may not be there when it is needed.
You may want to meet with a financial advisor to help you decide whether conservative or aggressive options are the best for you based on your goals.