Asset allocation is one of the most important steps at investing process. It may be implemented only when you are sure about two previous steps (risk tolerance and types of investments).
Asset allocation means the distribution of asset classes (types of investment) over investment portfolio. For a simple example asset allocation of the portfolio may look like this: 50% stocks, 30% long term safe bonds, 10% money market investments and 10% commodities. That is the asset allocation of an example portfolio.
What the asset allocation should be is a personal thing to every investor. It depends on investment goals, risk tolerance and availability/situation on the investment market.
Risk tolerance together with investment goals should draw the main lines for asset allocation: depending on it will be the riskiness and specifications of portfolio chosen. When it is done, the optimum portfolio composition should be achieved. The same risk level may be maintained at different investment portfolio compositions. There is full variety of investments and the goal of investment manager should be to achieve the best performance over predetermined period at predetermined risk level.
Or in other words, optimization of investment portfolio must be completed. In one hand it is kind of statistical work, but in reality, when financial markets are consistently changing and adapting, the statistics may do the work in a wrong way. Well it is again about market efficiency and other boring theories, but in practice asset allocation is partly a science, partly an art. Neither of them can be trusted too much in this area.
You must have a lot of experience in investing to choose the right allocation for your investment portfolio. If you don’t have that experience, you should find some investment guru that would help for you with it. Asset allocation is critically important for performance of your investments and you have to know what return can be expected.
Investment tactics are changes in asset allocation over time. For example, if one sees that now stock market are very high, he decreases the portion of stocks and puts it into short term bonds.
It sounds much easier than it is in reality. There is no reliable evidence that investment tactics create value. The main advice for you would be, if you are beginner at investing, at least you should forget about investment tactics until you gain enough of experience. Better keep to strategy.