Asset Allocation aims to optimise risk adjusted returns. Diversification is key to achieve this goal
Trade-off between risk, liquidity and return
The three main objectives of an investment - highest level of security, liquidity and rate of return cannot be achieved simultaneously. The investors must define which objective takes the priority, in accordance with their own preferences.
Diversification can significantly reduce unsystematic risks (distribution of assets in different asset classes).
The investor has no influence over systemic risks, or over natural disasters or wars, but the portfolio manager is required to manage the client's portfolio in a professional manner, in the best possible way, with the attention of a good businessman.