To build a personal portfolio using asset allocation, you need a well-crafted plan. Begin by taking a look at your investment goals, your tolerance for risk, and what kinds of investments you like to own.

Perhaps the best way to do that is by knowing what not to do. For instance:
Don't excessively duplicate - Don't fill your personal mutual fund with only energy stocks, or only small-company stocks. It's a recipe for disaster when, as always happens, energy and small-company stocks nosedive. Try to balance things out with some large-cap stocks, or some manufacturing company stocks, for example. That will ensure your portfolio still has some highs even if others are low.

Don't be "too" anything - As your mother said, "Everything in moderation." Don't be too aggressive or too passive. Try to build a blend of stocks and bonds that works for you. Experts call that an "all weather" portfolio. Sounds good to me.

Don't feel obligated to follow the herd - I know, everyone wants to be on the ground floor of the next Dell Computer or Raytheon. The trouble with that notion is 100 million Americans feel the same way you do. So if a hot tip comes out, chances are you're not the only one to know it (unless you know something the rest of us don't - in which case the SEC wants to talk to you). The problem with hot stocks is that you're usually buying them at the high and not the low. And buying high is not the strategy you're aiming for. Besides, a scattershot "hot stock" portfolio strategy is light-years away from a good asset allocation strategy: one that picks stocks for your portfolio based on your needs, risks, and goals, and the underlying company's ability to grow and make you more money over the long haul.

Don't forget to consider your own situation in life - nobody knows your personal financial situation as you do (another advantage, by the way, of building your own mutual fund). So build an asset allocation model that leans much more heavily toward stocks if you're ten years away from taking the gold watch and moving on into retirement. Keep it to 80 percent or more - you'll need to earn more money from your investments because, chances are, you'll be living a lot longer in retirement. Likewise if you're ten years away from a big lifetime event, like a child going off to college, keep most of your money in stocks as well. Again, accumulating wealth - and not preserving it - is the goal when you have time on your hands. As you get within five years or fewer of your retirement or your child's college days, you can begin preserving the capital you've accumulated by investing in bonds. Remember, it's all about finding the right balance.

Don't limit yourself geographically - Your portfolio should act as a musical symphony with each stock (instruments) in beautiful accompaniment with the others. Take a world view, too, when choosing the "instruments" that will comprise your personal portfolio. Since the U.S. stock market comprises only about 50 percent of the world's financial markets, it only makes sense to add some international flavor to your fund. Consequently, deciding how much of your fund should be reserved for U.S. stocks and how much of it is reserved for foreign stocks is a good strategy to take. From 2000 to 2002, international markets, by and large, outperformed U.S. stocks. And it wasn't the first time, either. Some investors may feel comfortable with 10 percent of their portfolio earmarked for foreign stocks while others may say 20 percent or even 30 percent is a better bet. Either way, just make sure you include the rest of the world when building your fund.