Dynamic Asset Allocation

What is 'Dynamic Asset Allocation'

Dynamic asset allocation is a portfolio management strategy that involves rebalancing a portfolio so as to bring the asset mix back to its long-term target. Such rebalancing would generally involve reducing positions in the best-performing asset class, while adding to positions in underperforming assets. The general premise of dynamic asset allocation is to reduce the fluctuation risks and achieve returns that exceed the target benchmark.

BREAKING DOWN 'Dynamic Asset Allocation'

For example, an investor with a $100,000 portfolio may want to hold 50% each of stocks and bonds. After a couple of years, when stocks have outperformed bonds, the portfolio now holds $65,000 in stocks and $55,000 in bonds. Assuming the investor wishes to retain the original 50:50 asset mix, dynamic asset allocation would result in the sale of $5,000 worth of stocks from the portfolio, and the proceeds would be used to buy bonds.

RELATED TERMS
  1. Rebalancing

    The process of realigning the weightings of one's portfolio of ...
  2. Strategic Asset Allocation

    A portfolio strategy that involves setting target allocations ...
  3. Portfolio Management

    Portfolio Management is the art and science of making decisions ...
  4. Tactical Asset Allocation - TAA

    An active management portfolio strategy that rebalances the percentage ...
  5. Asset Allocation Fund

    A mutual fund that provides investors with a portfolio of a fixed ...
  6. Asset Mix

    The classification of all assets within a fund or portfolio. ...
Related Articles
  1. Trading

    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. Financial Advisor

    How To Explain Portfolio Rebalancing To Clients

    Letting an allocation to stocks get too large can expose you to more downside risk than you had bargained for. Here are tips on how to avoid that.
  3. Investing

    Types Of Rebalancing Strategies

    Portfolio rebalancing provides protection and discipline for any investment management strategy.
  4. Managing Wealth

    Rebalance Your Portfolio To Stay On Track

    Like a tune-up for a car, this re-alignment should minimize trouble down the road.
  5. Investing

    The Role Of Rebalancing

    A disciplined rebalancing practice can add a lot of value to a long-term strategic asset allocation program.
  6. Managing Wealth

    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.
  7. Managing Wealth

    Strategic Asset Allocation

    Strategic asset allocation is a portfolio strategy that involves setting target allocations for various asset classes, then periodically rebalancing the portfolio back to the original allocations ...
  8. Financial Advisor

    How to Explain Portfolio Rebalancing to Clients

    Here are some of the best ways to explain the concept of rebalancing to clients and tips on implementing a regimen.
  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. ETFs & Mutual Funds

    Mutual Fund Tune-Up Delivers High-Powered Performance

    Rebalancing your portfolio will protect you from risk and ensure that your investments are performing at their best.
RELATED FAQS
  1. What is the difference between rebalancing and diversifying a portfolio?

    Understand the difference between rebalancing and diversifying, and learn why each is an important factor in maintaining ... Read Answer >>
  2. What is the proper asset allocation for a young investor's retirement portfolio?

    I am a recent college graduate with a good job. When searching for how to properly allocate assets within my 401k and Roth ... Read Answer >>
  3. How do I know when to "rebalance" my investments?

    In order to have a disciplined approach using "rebalancing style" investing, you must first setup a defined model that specifies ... Read Answer >>
  4. How can I use asset allocation to properly diversify my portfolio?

    Understand how asset allocation works, and learn how you can use asset allocation to diversify your investment portfolio ... Read Answer >>
  5. The primary reason for an IA to rebalance a client’s portfolio is to:

    A. ensure the portfolio matches the asset allocation chosen for the client's risk tolerance and objectives. B. increase portfolio ... Read Answer >>
  6. What does the end of the quarter mean for portfolio management?

    Take a deeper look at why the end of a financial quarter, and all of its accompanying reports, is a significant event for ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center