The main asset classes available to investors, in order of risk, are cash, property, corporate bonds (also known as fixed interest securities), shares and alternative investments such as commodities and private equity. Several studies (Ibbotson Associates 2002 and Brinson, Hood and Beebower's "determinants of Portfolio Performance" published in the Financial Analysts Journal in 1986 are examples of just 2 such studies) which have concluded that the combination of asset classes in a portfolio is the single most important factor in determining the investment performance of that portfolio and thus should be the starting point of the investment planning process.

The paper mentioned above published by Brinson, Hood and Beebower in the Financial Analysts Journal in 1986 entitled "Determinants of Portfolio Performance" suggested that well over 90% of the variation in investment performance of US pension plans could be explained by differences in asset allocation and this is supported by subsequent research studies that have reached similar conclusions - please see the graph below. Yet many investors, including professional investors, agonise instead over the selection of individual securities or funds for their portfolios, and “timing the market” rather than using asset allocation.

Sources:  Brinson, Hood, Beebower 1986, Ibbotson & Associates 2002,  Dimensional Fund Advisors Inc 2003