Asset allocation is a crucial aspect of portfolio diversification, as it involves spreading investments across different asset classes to manage risk and optimize returns. A well-diversified portfolio typically includes a mix of stocks, bonds, and alternative investments such as real estate or commodities.

For example, an investor may allocate 60% of their portfolio to stocks, 30% to bonds, and 10% to real estate investment trusts (REITs). This allocation strategy aims to balance the potential for high returns from stocks with the stability and income generation of bonds and real estate.

It's important to note that asset allocation should be tailored to an individual's financial goals, risk tolerance, and time horizon. Additionally, periodic rebalancing of the portfolio is necessary to maintain the desired asset allocation mix.

References:

• Investopedia - Asset Allocation: https://www.investopedia.com/terms/a/assetallocation.asp
• Vanguard - Principles for successful long-term investing: https://investor.vanguard.com/investing/principles