In the simplest terms, if cash, fixed income and equities are three different buckets, asset allocation is deciding how much of your account you put into each bucket. Those buckets are then broken down into sub-asset classes, styles, geography and economic sectors. The result of asset allocation is diversification of the portfolio.
This article is an excellent explanation of why asset allocation matters but if you have only a moment, take a look at the chart below. The market cycles quilt shows the annual returns of various asset classes over the past 10 years. It is immediately apparent that no one class is always at the top, or even the top three. Looking close to home with Canadian Stocks for example; this asset class has held the top, middle and bottom spot in as many years. Diversification means owning each class in different weightings and is much more likely to result in long-term success and a smoother ride along the way than trying to predict which class will be at the top in any given year.
To discuss the asset allocation of your portfolio and whether or not it is aligned with your goals, I can be reached directly here.