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.


Diversification


Related Articles
  1. Entrepreneurship

    4 Reasons Small Businesses Fail to Grow

    Owning a small business can be financially rewarding, but there are certain obstacles that may make building sustainable wealth more difficult.
  2. Investing

    5 Tools to Be More Knowledgeable About Your 401K

    Don't let wealth management daunt you. These five tools make managing your 401(k) simple and effective.
  3. Investing

    Where Do Campaign Funds Go After Elections?

    Learn about what those contributions are used for when the candidate is no longer running.
  4. Investing

    Global Financials: Exploring Revenue Trends & Fundamentals

    Learn where the global financial industry stands on revenue fundamentals compared to other industries and explore industry trends by geography.
  5. Home & Auto

    Mortgage Fraud: Understanding and Avoiding It

    There are many different ways to be victimized through home ownership - learn how to identify and avoid these crimes.
  6. Chart Advisor

    UPS Caught Between a Rock and a Hard Place

    UPS has been stuck within the boundaries of a 12-point trading range for the last two years.
  7. Economics

    Economics Report: Compare and Contrast India vs. Brazil (PBR)

    Find out why Brazil and India, two of the largest and most important emerging market economies, appear to be headed in very different directions.
  8. Mutual Funds & ETFs

    The 4 Largest Micro-Cap ETFs (IWC, FDM)

    Find out about investing in micro-cap exchange-traded funds, which experience thin trading volumes. Learn about four of the largest micro-cap ETFs.
  9. Chart Advisor

    Semiconductor Stocks Setting Up For a Move Lower (INTC, SMH)

    The chart of this semiconductor ETF suggests that this segment of the tech sector is next to move lower.
  10. Mutual Funds & ETFs

    5 Best High-Yielding Japan Bond ETFs (BNDX, ISHG)

    Discover five different investments that provide exposure to Japanese bonds and that can potentially give your portfolio a boost in yield.
RELATED TERMS
  1. Real Estate Tier Classifications: ...

    Cities are categorized as Tier I, Tier II, or Tier III depending ...
  2. Bunny Market

    Bunny market describes a stock market that does not have an obvious ...
  3. Davos Man/Davos Woman

    Davos man/Davos woman refers to the members of the World Economic ...
  4. File and Suspend

    File and suspend is a Social Security claim strategy that allows ...
  5. Form 1095-B

    An IRS Form sent to individuals who received minimum essential ...
  6. Form 1095-A

    An IRS form sent to anybody who received health insurance coverage ...
RELATED FAQS
  1. Is a money market account the same as a money market fund?

    Discover the differences between money market accounts and money market funds, including minimum balance requirements, withdrawal ... Read Answer >>
  2. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ... Read Answer >>
  3. What typically comprises a money market fund?

    Learn about the basic types of money market funds and discover how they are characterized by the types of investments that ... Read Answer >>
  4. How can I budget for both short-term expenses and long-term goals?

    The first step in planning for long-term goals is actually determining how much you spend on short-term expenses. Once you ... Read Answer >>
  5. What are common advantages of investing in large cap stocks?

    Learn what large-cap stocks are and how investors can benefit from common advantages of adding large-cap stocks to their ... Read Answer >>
  6. How old should you be to get life insurance?

    There's really no pre-determined age when it suddenly becomes necessary to take out a life insurance policy. However, if ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center