Series 65

Portfolio Management - Strategic vs. Tactical Asset Allocation

  • 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.





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