Tactical Asset Allocation Strategy
Tactical asset allocation strategy is a moderately active portfolio management strategy, which includes adjustments of investments with respect to short-term goals. Although the basic idea is to diversify investments and limit risks, investment preferences are given to different asset classes with respect to short-term yield predictions.
A tactical asset allocation strategy starts just like a strategic asset allocation strategy with diversification of portfolio with respect to long term goals in mind. The investor/portfolio manager then readjusts the investments with different asset classes. If equities are predicted to perform well in the near future, he/she allocates more capital for it; and if bonds are predicted to perform well, then more investments in bonds, and so on. Once the preferred result is obtained, the investor returns to the original allocation ratio desired for long-term goals.
Success with tactical asset allocation requires good money management, and ability to interpret and predict short-term trends. Investors consider P/E and P/B ratio of equities, fundamental indicators, various momentum and sentiment signals, and economic predictions in making decisions. The investor/portfolio manager must be keen enough to go back to original ratio, once the short-term profit opportunity is diminished. Tactical asset allocation strategy, in theory, can offer better results than strategic asset allocation strategy; but it also has more risks associated with it.
A tactical asset allocation strategy starts just like a strategic asset allocation strategy with diversification of portfolio with respect to long term goals in mind. The investor/portfolio manager then readjusts the investments with different asset classes. If equities are predicted to perform well in the near future, he/she allocates more capital for it; and if bonds are predicted to perform well, then more investments in bonds, and so on. Once the preferred result is obtained, the investor returns to the original allocation ratio desired for long-term goals.
Success with tactical asset allocation requires good money management, and ability to interpret and predict short-term trends. Investors consider P/E and P/B ratio of equities, fundamental indicators, various momentum and sentiment signals, and economic predictions in making decisions. The investor/portfolio manager must be keen enough to go back to original ratio, once the short-term profit opportunity is diminished. Tactical asset allocation strategy, in theory, can offer better results than strategic asset allocation strategy; but it also has more risks associated with it.
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posted by Daniel Pipitone at
4:10 AM
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