Asset allocation plays a significant role while building your investment portfolio. Having an optimal asset allocation helps balance your risk and returns. You can invest in various asset classes like equity, debt, cash and equivalents, commodities, real estate, etc., that help mitigate market volatility and concentration risks. A well-diversified investment portfolio can be built based on your short- and long-term financial goals like purchasing a new car or home, marriage, international holiday, children's education, retirement, etc. It is important to periodically rebalance your investment portfolio to maintain the target asset allocation and achieve short-term financial goals. For example, while rebalancing your equity portfolio, you can book profits in outperforming stocks and invest in underperforming stocks.