In investment management circles, the phrase ‘asset allocation’ has become increasingly de rigueur.

It sounds like part of an incredibly complicated investment strategy, yet in fact, it’s something we do automatically, though not always successfully — or with returns in mind, and is determined by a number of factors, not least our attitude to risk.

For example, I drive a decent car bought new seven years ago. It has less than 45,000 miles on the clock, is paid for and, as it is regularly serviced, it swings through the annual MOT.

I am not a car person, so have avoided the MLCV (mid-life crisis vehicle – we all know what they are), but more importantly, I have no desire to own a depreciating asset.

When it comes to cars, ‘asset allocation’ is merely a functional necessity. I only require something capable of getting me from A to B as comfortably and as rapidly as possible, mindful that this particular asset has zero long-term value.

By contrast, I find assets that appreciate in value and provide an income in the interim considerably more attractive.

Most of us already have them — bank deposits, guaranteed savings certificates, perhaps some shares, maybe even an investment property.

Of course, our motives for acquiring assets are determined by what we believe we will get back from them, which in turn is a function of the amount of risk we are prepared to accept for investing in asset X instead of asset Y.

At present, most savings are generating negative returns as rampant inflation erodes the value of money sitting dormant in bank accounts.

Property, too, is failing to appreciate in value, although it is likely to in the not-too-distant future, and most investment properties are generating positive income returns.

Meanwhile, dividend-yielding shares are scoring on both fronts — appreciating in value and providing holders with an annual dividend income to boot.

‘Asset allocation’ is not some form of obscure investment theory. Furthermore, it matters because during a period when, as is the case now, investment returns are depressed, investors are inclined to move money from under-performing assets (such as bank accounts and property) and into other areas.

But different types of investments perform in different ways.

Riskier investments, such as equities, tend to yield the best returns over the longer term, although the corresponding ‘cost’ to the investor is (in part) their inherent volatility.

Who could have seen what would happen to BP’s share price last year, for example, or to most bank shares a few years ago?

To echo that consistently accurate northernism: “You don’t get ‘owt for nowt’.

It follows that the prudent investor will combine a variety of different investments within a portfolio so as to smooth out any unforeseen swing in value.

Ideally, these investments will also be ‘non-correlated’, so their prices and values will move independently of each other.

Some analysts maintain a portfolio’s asset allocation accounts for more than 90 per cent of its returns.

I’m not convinced it is that high, but I do know that keeping a constant eye on how your assets are spread makes enormous sense.