A number of factors will go into your asset allocation decision, including your age, income level, total wealth and your tolerance for risk, which is a very personal decision. Another issue to consider is liquidity; if you need ready access to your invested funds, you could wind up with lower returns.

When developing your plan, avoid the trap of looking at the segments of your portfolio in isolation. All the things that comprise your total net worth should be considered as part of an integrated whole, including your home, (which really is an investment in real estate) any defined contribution plan you participate in at work, and your future earnings power. You may be very comfortable investing in the industry you work in because you understand it so well, but you should be wary of compounding your exposure to risk.

The most basic asset allocation involves distributing your risk among stocks and bonds, but to have a truly diversified portfolio, you'll need exposure to more asset classes than these two, such as real estate and other alternative investments loosely correlated to the rest of the market. More sophisticated investors can look for deeper diversity: Instead of just owning a world fund, you can invest in European securities, Pacific Rim stocks and emerging markets. Choosing low-cost exchange traded funds and index funds can help boost your total return.

If you need reassurance that the plan you've come up with is a good one, consider running your ideas by a trusted investment professional. Go to someone who works on a fee-only basis, rather than someone who works on commission, so you're assured of an unbiased opinion.

The main thing is to gain enough confidence in your portfolio's structure that you're not second-guessing yourself in downturns. The market's gyrations can test even the most diversified portfolio. But if you have a clear understanding of what you own and why, you're less likely to make a performance-damaging leap when things get rough.

But don't try to be a perfectionist, Ferri warned. It's impossible to develop an asset allocation that will work every time, in all conditions. Wall Street professionals have tried, and their efforts have proven that the perfect portfolio does not exist.

"The problem with all investing is you'll go through periods of time when what you're doing isn't working. But that doesn't mean you shouldn't do it," Ferri said. "Come up with a good plan with all the data you can gather, implement it and maintain it, and just hang in there. That's the solution."

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