• 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. Managing Wealth

    6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.
  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. Investing

    What Is Strategic Asset Allocation?

    A strategic asset allocation takes a long-term approach to help an investor achieve their financial goals. Here's how it works.
  6. Investing

    Tactical Allocation Funds: A Sucker's Play?

    John Rekenthaler of Morninstar has illustrated that the dismal performance of tactical allocation funds makes them a sucker's play.
  7. 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.
  8. Financial Advisor

    Which Asset Allocation is Best for Clients?

    Modern Portfolio Theory is showing its age. So which asset allocation model is best?
  9. Managing Wealth

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return with the right mix of securities is the key to achieving your optimal asset allocation.
  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.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center