• Strategic asset allocation calls for setting target allocations and then periodically rebalancing the portfolio back to those targets as investment returns skew the original asset allocation percentages.

    • The concept is akin to a "buy and hold" strategy, rather than an active trading approach.

    • Of course, the strategic asset allocation targets may change over time as the client's goals and needs change and as the time horizon for major events, such as retirement and college funding, grows shorter.

  • Tactical asset allocation allows for a range of percentages in each asset class (such as stocks = 40-50%).

    • These are minimum and maximum acceptable percentages that permit the IA to take advantage of market conditions within these parameters.

    • Thus, a minor form of market timing is possible, since the IA can move to the higher end of the range when stocks are expected to do better and to the lower end when the economic outlook is bleak.

The article Asset Allocation Strategies contains information on the various asset allocation strategies, from strategic and tactical, to other strategies such as constant-weighting, dynamic and insured.


Look Out!
On the test, strategic asset allocation may be linked with a "passive" investment style (see the Portfolio Styles section below), while tactical asset allocation is linked with an "active" investment style.




Diversification

Related Articles
  1. Investing

    What Is Tactical Asset Allocation?

    Here's how tactical asset allocation, an extension of strategic asset allocation, works.
  2. Investing

    Strategic Asset Allocation to Rebalance Portfolios

    This involves setting allocations for various asset classes, then yearly rebalancing the portfolio when it deviates from the initial settings.
  3. Investing

    6 Asset Allocation Strategies That Work

    An asset mix should reflect an investor’s current goals. Here are a few strategies for establishing the right allocation.
  4. Financial Advisor

    An Introduction to Asset Allocation

    A portfolio is only as strong as its asset allocation. To create the right one, investors need to determine their risk tolerance, time horizon and goals.
  5. Managing Wealth

    Choose Your Own Asset Allocation Adventure

    There are many strategies to help balance your portfolio. Here are a few to get you started.
  6. Financial Advisor

    The 401(k) Emergency Boomers Need to Address Now

    The asset allocations of Baby Boomers’ 401(k)s are dangerously out of balance. Here's how to remedy that.
  7. Financial Advisor

    Which Asset Allocation is Best for Clients?

    Modern Portfolio Theory is showing its age. So which asset allocation model is best?
  8. Investing

    Asset Allocation Models: Comparing 3 Traditional Strategies

    Learn about the three most common asset allocation models: conservative, moderate and aggressive.
  9. Investing

    American Funds Capital Income Builder Trends in 2016 (CAIBX)

    Learn about the composition of the American Funds Capital Income Builder fund, and discover how its makeup has evolved between March 2015 and March 2016.
  10. Investing

    5 Things to Know About Asset Allocation

    Overwhelmed by investment options? Learn how to create an asset allocation strategy that works for you and builds toward retirement.
Frequently Asked Questions
  1. What is the difference between yield and return?

    While both terms are often used to describe the performance of an investment, yield and return are not one and the same ...
  2. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  3. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  4. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
Trading Center