Asset allocation is an investment strategy that involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The goal is to balance risk and reward according to an individual's financial goals, risk tolerance, and investment time horizon. By spreading investments across various asset classes, investors can potentially reduce the impact of poor performance in any single category. The specific mix of assets in a portfolio can vary based on factors like age, income, and market conditions. Regularly reviewing and adjusting the asset allocation helps ensure that the portfolio remains aligned with the investor's objectives and risk preferences over time.