Asset Allocation Strategies You Should Know About
Someone who’s knowledgeable about investment management in Goshen, NY, will tell you how important asset allocation is when it comes to creating and balancing an investment portfolio. Since it involves the dynamic process of establishing the right asset mix of cash, stocks, bonds, and real estate in your portfolio, your asset allocation strategy should clearly reflect your goals.
What are the Different Types of Asset Allocation Strategies?
Strategic Asset Allocation
This refers to a proportional asset combination that’s based on expected return rates for each asset class while considering your risk tolerance and investment time-frame. Aside from heavily suggesting diversification to improve returns and cut back on risks, this strategy is also similar to a buy-and-hold strategy.
Constant-Weighting Asset Allocation
Using constant-weighting asset allocation means rebalancing your portfolio to its original mix whenever one of your asset classes moves over 5% from its original value. For instance, if one of your assets declines in terms of value, you’ll want to purchase more of that asset. When you see an increase in that asset’s value, you’ll want to sell it.
Tactical Asset Allocation
This moderately active strategy returns to the overall strategic asset mix after achieving your desired short-term profits. Aside from adding a market-timing element to your portfolio, this flexibility will also allow you to capitalize on exceptional opportunities for investment. Additionally, this will also allow you to take part in economic conditions that can be more advantageous for one of your asset classes than for others.
Dynamic Asset Allocation
This active asset allocation strategy requires you to constantly adjust your asset mix according to the rise and fall of the markets and the economy. Using this approach means selling assets that are declining and purchasing those that are increasing. Essentially, this strategy solely relies on your portfolio manager’s judgment rather than a target mix of your assets.
Insured Asset Allocation
This requires the establishment of a base portfolio value and your portfolio shouldn’t be allowed to drop under it. With this approach, the decision to buy, hold and sell securities to increase the portfolio value relies on forecasts, analytical research, judgment, and experience.
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