It's not so much what you picked as what you didn't that will decide how wealthy you will be. That's why it's futile mulling for too long about a particular stock or fund manager or, worse, throwing your all into whatever's hot at the moment.

And the worst wealth building thing you could do in this admittedly uncertain environment is to go for a gold medal-winning dash for cash.

Just as interest rates are falling, opportunities for investing are increasing.

The truth is that, over time, it's the big picture that will be the most critical. And the more you have in cash, the poorer you'll be.

"Every study on the subject shows that your asset allocation has the biggest impact on what happens to a portfolio return," says Assyat David, director of Strategy Steps.

So you need to avoid having too much of your wealth tied up in shares or, the other extreme, languishing in a term deposit.

"People tend to go to extremes and shift too much to cash and they often miss a market upturn,"she says.

For all the appeal of storing cash in a well-paying online account or term deposit - after all, with them you can't really go wrong - it only works if you have an investment horizon of less than three years.

DON'T WORRY, BE PATIENT

There's nothing wrong with a short-term horizon either, so long as you're saving for a home deposit, need to keep some liquidity because you're on an allocated pension, or whatever. But it's a disaster otherwise.

"Your time frame is the overriding thing when investing," says Peter Walsh, senior vice-president at Putnam Investments.

"If it's less than three years, only look at cash. Don't look at growth investments."

In fact, over the past two decades the worst periods of the market going sideways after a slump have been 16 months including all of 1994 for bonds, 41 months (after the 1987 crash) for listed property trusts (LPTs) and a character-building 68 months (also after the 1987 crash) for shares.

But over long periods "invariably anything is better than cash," Walsh says.

GOAL SCORING

The right portfolio depends on where you want to be. And don't say "rich" because deep down that might not be the case. Since higher returns come with higher risk - sorry, nothing's easy, is it? - then you'd also be saying you don't mind losing sleep at night worrying about a 50percent drop in value for three years.

So how about it?

Thought so - let's settle for just richer.

One way is to settle for an 8percent return a year, the 100-year average for shares and properties.

Or maybe take the Future Fund's inflation plus 5percent which this year would give almost 10percent. But for retirees, for example, preserving capital is the overriding objective. The point to remember is that your objective has to coincide with your tolerance for risk.

If it doesn't, the chances of panicking are high and you could do something silly.

TAKING A RISK

By the way, risk doesn't refer to your investment going belly-up, though, heaven knows, it's a consideration.

Advisers say it's a combination of volatility, which is more your threat of going belly-up, and illiquidity which means you can't get out when you want to. Or are forced to. There's also a tendency for investors to underestimate the impact of volatility and risk - a case of easier said than done.

Fortunately you can get around risk by nipping it in the bud. The secret is to have a diversified portfolio, including the right asset mix.

Funnily enough, a sure way to raise risk is to pick whatever's hot. The reason is that you'll probably be paying more than you should and if it's in a bubble it'll come to no good.

Even choosing a stock or managed fund on the basis of how it went last year is beset with risk.

None of the top 15 best performing fund managers three years ago is still in the first 15. In fact seven of them have dropped to the worst 10.

As the chart to the left from Vanguard shows, there's no rhyme or reason for what will come out on top or at the bottom from one year to the next. Even choosing the worst performer of the year is a better guide. Whatever caused it to do badly is bound to come back into fashion sooner or later.

In the case of shares, a battered stock will be cheap and so at least offers some upside.

ON BALANCE

For all the way that financial advisers and fund managers go on about choosing the right asset mix, the funny thing is that in most cases it settles at 70percent shares (mostly Australian) and 30percent fixed interest.

That also happens to be the factory setting for most super funds, and is based on a five- to seven-year horizon.

Walsh estimates about two-thirds of super holdings are in either a 70-30 or slightly more conservative 60-40 fund.

Mind you, what's considered conservative has become riskier over the years.

When the idea of a balanced portfolio came into vogue it was split 50-50 between shares and fixed interest.

"To sustain yourself through retirement you need more than 50-50. We take 70-30 as the midpoint and then if you want to be more aggressive you go higher than 70-30," says Michael Hutton, financial adviser and partner at HLB Mann Judd.

Incidentally if you're comparing the performance of super funds, remember no two balanced funds are the same. While both may boast 70percent shares and 30percent fixed interest, the breakdown between these can vary enormously.

One fund might have 70percent in the sharemarket, while the other has 45percent in shares, 10percent in alternative assets such as infrastructure funds and 15percent in international equities. Yet both are called balanced funds.

STOP THE WORLD

It's also worth reviewing your asset allocation, say, every five years.

As you age and your circumstances change, you might also have different goals.

Besides, even the best thought-out portfolio can get out of kilter over time as markets move. In just one year - for example, between October 2006 and October 2007 - Putnam Investments calculated that a 70-30 portfolio with 40percent Australian shares, 30percent international shares, 20percent fixed interest and 10percent LPTs would have shifted dramatically but unintentionally.

The breakdown became shares, 46percent, and international shares, 26percent, with the result that the portfolio's investment was slanted 15percent too far towards the sharemarket.

So its riskiness and volatility was pushed out of kilter from what was wanted.

"It shows what market movements alone can do to your asset allocation. Even though nothing changed in your view, nothing changed in your strategy, [the] markets rebalanced your portfolio," Walsh says.

Then comes the hard part.

"It requires you taking money away from your top performing Australian share investments and giving it to your poor performing international share investments - a tough call but appropriate," he says.

SELF OR MANAGED

Once you've picked your allocation - phew! - there's the small matter of implementing it. Fortunately there are lots of options that can make it easier.

You can get managed funds for the sharemarket, international shares and bonds and fixed interest.

The key things to look for are the manager's style (whether bargain hunting or growth-oriented - having one of each is even better), how stable its returns are, whether it's income or capital gains-oriented - which can have tax repercussions - and the cost (anything more than 2percent a year is pricey).

Or you could do it yourself if you have the expertise and time.

As a rule, Hutton recommends investing in the sharemarket half through a managed fund and half directly through a broker.

Mind you, one solution is to use either an index or an exchange traded fund.

These are a cheap way of tracking the overall market, usually the top 50 or 200 stocks, which gets you neatly around the problem of having to choose something.

Their drawback is that they aren't exactly discriminatory so with the top 50, for example, you'd be getting a huge chunk of finance and mining-related stocks.

The ups and downs of a mixed bunch

IN A diversified portfolio it shouldn't really matter how any single investment fares because there's always another going the other way. Still, it would be nice to know whether more of them are likely to go up or down. So here goes.

Take cash first, since it's the easiest. We know interest rates will fall because the Reserve Bank said so. In which case, sticking money into a term deposit will leave you like a shag on a rock. For a start, when it matures you'll get less but, potentially worse, it means you will have missed any upturn in the sharemarket. After all, there is nothing sharemarkets like more than falling interest rates.

Which brings me to fixed interest, a sector that has come under a cloud thanks to the credit crisis. Normally you can rely on it through thick and thin, though its performance in the year to June 30 was pretty lacklustre. Still, in the past 20 years fixed interest has gone backwards only once (in 1993-94 it slipped just 1.1percent) and, were it not for fears of rising inflation, bonds would have to be the investment most likely to succeed this financial year.

It may yet be. Rising inflation will put a floor under bond yields, which will fall to some extent, so producing some capital gains. But it's worth bearing in mind that what is termed fixed interest has become fuzzy. A fixed interest fund, for example, is likely to contain assorted hybrids such as converting preference shares and floating rate securities. These have higher yields than boring old bonds but only because they're a halfway house to shares.

Their prices can be volatile and are just as likely to move on a change in market sentiment as a change in interest rates. "You're loading equity risk into a defensive part of asset allocation," says Andrew Pease, investment strategist at Russell Investment Group. As for the sharemarket, it's impossible to tell whether it has bottomed yet but we sure must be near it. Positives are falling interest rates, the comparative strength of Australia's banking sector and record profits. The negatives: a cooling off of commodity prices; the slump in the dollar that puts the hedge funds off investing here; and a slowing economy.

Then there is a skittish Wall Street - which in this age of globalisation has a disproportionate influence on the market - that could go either way. Judging by past bear markets, we appear to be about halfway. In which case a strong upturn next year is more likely than not.

The asset class that has been trashed the most since the credit crisis came to town has been listed property trusts (LPTs). There's no disputing the reasons: they became overloaded with debt (considering they're supposed to be defensive and have been a staple of super funds) and the market had pushed their prices up too far in the first place. As is the way of markets, though, the fact that LPTs have fallen so out of favour makes them more attractive because they are cheaper. In any case, there's not much evidence that the values of shopping malls, office blocks and industrial estates have been sliding precipitously. "The time will come again when we look at LPTs as defensive," says MLC investment strategist Brian Parker. He predicts they'll have no choice but to get their act together "by selling assets and going back to basics". So no quick recovery there, then.

The other main asset class is international shares - the most volatile investment because as well as the normal market shenanigans there are the even more bizarre currency fluctuations to be reckoned with.

"Self-managed funds are usually 90percent Australian shares but they should allocate more to international shares with growing emerging markets and the dollar coming off, or they'll miss out on growth opportunities," says Michael Hutton of HLB Mann Judd.