According to Investopedia, asset allocation is "an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time."

The chart below helps demonstrate this. The chart illustrates annual returns for various asset classes from 1991-2010. As you can see, various asset classes perform differently at various times. Keep in mind that asset allocation does not assure a gain and does not protect against a loss in declining markets.