Constant-Weighting Asset Allocation Strategy

Constant-Weighting asset allocation strategy is a moderately active portfolio management strategy. The strategy includes readjustment of portfolio in accordance with performance of assets. For profiting most from this strategy, persons or portfolio managers should always be in touch with economic changes and news.

Like strategic asset allocation, constant-weighting asset allocation strategy has a ‘base policy mix’, which is the proportion of portfolio to be allocated for each asset class like stocks, bonds, funds, real-estate, etc. Those who follow constant-weighting strategy buy-and-hold assets according to the initial base policy mix; but they frequently rebalance their portfolio with respect to the performance (or price) of the asset. For example the declining of stock value would tempt them to buy more stocks and the increasing of stock value would tempt them to sell the stocks they holding. After exploring opportunities, portfolio is then readjusted to the original base policy mix.

Market research and timing are important with constant-weighting asset allocation strategy. Although not a strict rule, most followers of this strategy returns to base policy when any asset class increase/decrease above 5% of initial value. Advantages of constant-weighting asset allocation strategy include predictable income and risk, better utilization of opportunities and portfolio diversification. Downsides include need of trading/investing experiences, need of evaluating tools and constant monitoring of asset classes.

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