Asset Allocation

• It's a way to adjust the risk level of your portfolio.
• Asset allocation is a way of reducing variance.
• You cannot time the market, you cannot predict the market. The only things you can control is how much money you invest + your asset allocation
• Returns don't come without risk. The Four Pillars of Investing recommends having at least 20% in "riskless" returns such as bonds, HYSAs, or money market accounts. (I'm skeptical of this number - feels arbitrary and high. However, the general principle of having some money stored in a 'riskless' fashion).
• Smaller assets have greater risks.
• Diversity of bets decreases your risks. For example, if you invest in 100 high-risk startups, any individual bet may fail, but some will succeed. If ~90% fail and the winners have at least 10x growth, then your overall portfolio is low risk. You can de-risk your portfolio by holding a diverse set of assets. Also,
• Dividing your portfolio between assets with uncorrelated results increases returns while decreasing risks. Different assets behave differently over time. The most important concept in portfolio theory.

Further Reading

• Recommended Net Worth Allocation Mix by Age and Work Experience - Financial Samurai
• Summary: The Intelligent Asset Allocator