Asset Allocation is an approach to managing your investments that involves setting parameters for different asset classes (bonds, real estate, cash, stocks, etc.) It involves setting a percentage of each kind to hold in order to reach your investment goals.
Why It's Important
Planning your asset allocations is a lot like budgeting. There are a multitude of different resources available to see what your target asset allocations should be based on your age, income, and retirement age when planning for retirement. Generally, the younger you are, more of your portfolio should be invested in stocks. As you get older you would start transitioning your portfolio to more bonds as they are a less volatile investment. This video may help.