We seek to construct the "Optimal Portfolio" based on your level of risk-tolerance and we are guided by the work of Nobel Laureate Harry Markowitz, who introduced modern portfolio theory (MPT) to the investment world in the 1952.
Markowitz found that by combining a set of different risky assets in varying ratios, at defined levels of risk-tolerance, a portfolio could exhibit a more certain range of returns with less fluctuations - i.e. the Optimal Portfolio.
The Optimal Portfolio for an investor's level of risk-tolerance is what advisers will often refer to as a Conservative, Balanced/Moderate, Growth or Aggressive portfolio. Or some variation.
We construct these portfolio using a graph seeking the Efficient Frontier
- which the video below, by Investopedia, explains very well.