Strategic Vs. Tactical Asset Allocation Approach
Perhaps you’ve heard a few things about strategic and tactical asset allocation, and you’re not so sure if you know the difference between both types of approaches. Since these investment strategies usually get interchanged, it’s best to ask the best financial investors in New York to help you get a better sense of what their distinct outcomes are.
Knowing the Difference Between Strategic and Tactical Asset Allocation Approach
Strategic Asset Allocation
This kind of approach is all about a target allocation of asset classes that the investor expects to have in place for an extended period. To give you a more precise snapshot of this concept, think of an investor who has a balanced portfolio of 50% bonds and 50% stocks.
With strategic asset allocation, the target allocation is expected to remain as it is. However, the investor’s portfolio will still need to be re-balanced as required according to the appropriate budget. Since the focus of strategic asset allocation is on the portfolio’s overall risk objective, it usually takes a more long-term view compared to what the other type of approach takes.
Tactical Asset Allocation
This type of approach takes a short to intermediate-term view as it searches for opportunities to invest in the market. For example, within the allocation’s 50% stocks part, an investor might want to own more in small-cap companies that have a market capitalization value that ranges between $300 million and $2 billion than in large-cap companies that have a market capitalization value that’s more than $10 billion.
However, when the investors get more attracted to large-cap companies, they might put more of their money into these companies than they would allocate to small-cap companies. In other words, tactical asset allocation doesn’t keep the investors from moving into and out of the market.
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