What is Asset allocation?
How a portfolio is divided between asset classes: equity, debt, gold, cash. The split, not the individual holdings, drives most of the variation in a portfolio return.
Allocation decides how much a portfolio falls in a bad year, which is the number that decides whether the investor holds on. An allocation abandoned in a drawdown is worse than a more modest one held through it, because selling turns a paper loss into a realised one.
Not to be confused with Diversification
Allocation is the split between asset classes. Diversification is the spread within one of them. Twenty equity funds are diversified and not allocated, since they will all fall together.