It was once said that patience—in its truest form—is a virtue. Patience in the stock market, however, is a rarity.

When markets are volatile, many investors find themselves wanting to move out of vulnerable sectors into ones that are thriving. Unfortunately, attempting to time the market is never a wise decision and can often backfire, as investors tend to get out of the slumping sectors once the damage has been done and into the "hot" ones after prices have already increased.

That's why you need to concentrate on keeping your portfolio broadly diversified among a variety of asset classes. By doing so—and remaining patient through any volatility you may encounter—at least some portion of your portfolio may reap respectable returns even if other parts have seen better days.

This process is called asset allocation. Not only does it give you both structure and discipline so you're better prepared for market turmoil and economic downturn, it also provides the right investment mix of stocks, bonds and cash for your circumstances. What's more, asset allocation is designed to help you better manage risk, match your investments with your goals, and enhance the stability of returns in both good and bad markets.

The value of asset allocation is obvious when equities markets are depressed and in periods of broad economic recession, as we have seen in the past. For example, several years ago, many investors were inappropriately over-weighted in stocks—or, to be more specific, in technology stocks. Had these investors employed a proper asset allocation strategy and diversified their investments based on their goals, time horizon and risk tolerance, they might have fared better during the recent bear market. Clearly, this has been a valuable lesson for many.

However, as markets rebound—as they appear to be doing to some degree now—this lesson may quickly be forgotten. More than just a few investors may once again be tempted to chase the next "hot" stock, whatever it might be.

Yet asset allocation is also critical in rising markets. In fact, studies have shown that how investments are allocated is of much greater significance in determining overall portfolio performance than what the individual investments are: More than 90 percent of investment performance can be attributed to asset allocation, while less than 10 percent is attributable to individual investment selection or luck.

With these figures in mind, here are some general guidelines for you to follow when considering the allocation of assets in your own portfolio.

First, determine your goals and time frame. Do you want to save for retirement? Do you want to buy a second home? Are you interested in traveling the world? Your asset allocation should reflect your objectives, while balancing risk and return potential accordingly. Taking these factors into consideration will help ensure you don't wind up with an allocation that's too conservative or aggressive.

What's more, as your goals or time frame change, so should your asset allocation. For example, as you near retirement, your assets should shift to a more conservative allocation, oriented more toward capital preservation rather than growth.

Second, organize your assets into four categories: stocks, fixed income, cash equivalents, and other tangible assets such as real estate. Using this information, you can determine if your current allocation is designed to meet your specific needs and goals. If you are saving for your newborn's college education, for instance, a more aggressive stance utilizing stocks may be more appropriate for that portion of your portfolio earmarked for college funding. However, once college is right around the corner for your child, this part of your portfolio should include more bonds and cash and less stock to help provide protection.

Now that you have a firm grasp of your financial situation, a financial adviser can help you create an asset allocation model tailored to your needs. Together, you can explore the various investments and how different types—stocks, bonds and cash investments—can work together to help achieve your goals. As you may know, each asset class has different financial characteristics that make it more or less appropriate depending on the objectives you seek. With this knowledge, you can utilize a combination of asset classes to construct an effective and well-balanced portfolio that will help offset the volatility of the financial markets.

Finally, it is critical to review your allocation regularly with your adviser. In order to ensure the decisions made are on target to meet your objectives, it is essential to monitor your allocation and make necessary modifications in light of industry conditions and changes in your goals or financial situation.

		Daniel Dueweke is a financial advisor with AHP Financial Services (AHPFS), offering financial planning and investment management services. AHP Financial offers securities exclusively through Raymond James Financial Services, member NASD/SIPC. AHPFS is also an affiliate of Andrews Hooper & Pavlik PLC.