Investor Facts: What Is Tactical Asset Allocation?

Posted on July 11, 2018 at 9:28 AM PDT by

A tactical asset allocation is an investment strategy based on making timely changes in the amount, size and holding periods of a variety of securities.

Most investors hold more than one type of security or investment type. On occasion, they might increase or decrease their positions in each.

Tactical asset allocation as an investment strategy means making a concerted effort to do so effectively with an eye toward increasing return while not increasing risk.

Tactical asset allocation has become somewhat of a buzz phrase in the financial planning industry and it can mean a few different things.

Some firms and investment companies refer to tactical asset allocation as a method of putting a client’s money into an initially diversified bucket that is based on a risk-tolerance questionnaire the client completes or based on the results of a financial plan.

As your age or risk tolerance changes over time the firm will tactically (as they call it) change the allocation in your portfolio to ensure the investments continue to make sense for you.

Trend following

Other companies consider automatic rebalancing or “auto rebalancing” — that is, programatically selling certain asset classes in order to buy others in the same portfolio — as one of the features of their tactical asset allocation strategy.

Finally, some investment advisory firms use technical analysis, including trend-following and relative strength (among other strategies) to change the makeup of a client’s portfolio over time based on market and economic conditions.

Rather than simply changing your portfolio based on risk or age, your allocation in this final approach is changed based on which investments are in or out of favor, which investments have momentum, and which investments should be completely avoided.

As such, these investment changes are a form of tactical asset allocation.

In summary, “tactical” can mean any change to your investments in anticipation of change in the economy, the investments themselves or one’s own financial goals.

The point is to get ahead of coming changes by preparing your investments before events overtake you and force decisions that might not be advantageous if taken under duress.

MarketRiders, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.