• 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

    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.
  2. 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.
  3. 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.
  4. Financial Advisor

    Asset Allocation vs. Security Selection: The Main Differences

    Both are important to a long-term investment strategy, but asset allocation and security selection have different missions.
  5. Financial Advisor

    Which Asset Allocation is Best for Clients?

    Modern Portfolio Theory is showing its age. So which asset allocation model is best?
  6. 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.
  7. Investing

    The Importance of Rebalancing Your Portfolio

    Rebalancing benefits your investment portfolio in many ways and should be done regularly.
  8. Investing

    Asset Allocation Models: Comparing 3 Traditional Strategies

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

    5 Tips to Increase the Performance Of Your Portfolio

    Discover helpful steps an investor can easily take to improve the performance of his investment portfolio by maximizing gains and minimizing losses.
Frequently Asked Questions
  1. What Was the First Company to Issue Stock?

    The Dutch East India Co. held an IPO in 1602, making it the first company to issue stock.
  2. When Does a Corporation Decide to Refinance Debt?

    Favorable market conditions or the strengthening of a credit rating may lead to refinancing.
  3. What Is an Odd-Lot Buyback?

    Odd-lot buybacks involve lots of less than 100 shares. Learn how companies get these shares back.
  4. Can I buy a house directly from Fannie Mae (FNMA)?

    Yes, Fannie Mae does sell properties it's foreclosed on; each property is sold in "as is" condition.
Trading Center