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Strategic vs. Tactical Asset Allocation

In recent years, the markets, the economy and the global political scene have evolved considerably. We’ve witnessed both remarkable volatility and remarkable resilience in these areas. The reality is that less predictability in today’s economic landscape requires more vigilant risk diversification, coupled with the ability to adapt to a fast-changing environment.

We work with our clients to set financial goals and make strategic and tactical recommendations to help them reach their individual financial objectives. Equally as important, we want to encourage clients to work with us to monitor their financial progress and let us know when their personal or financial situation changes. Investing mirrors life in many ways: You make plans, but they often get disrupted, waylaid or delayed. By closely monitoring your financial strategy, we can help you determine if and when it’s time to make changes.

To this end, it may be beneficial for you to understand the distinction between strategic asset allocation and tactical asset allocation. Strategic allocation establishes and maintains a deliberate mix of stocks, bonds and cash designed to help meet your long-term financial objectives.

Tactical asset allocation, on the other hand, is more market focused. While an investor may set parameters for how much and how long he wants to invest in a certain asset class, he may want to then increase or decrease his allocations by 5 percent to 10 percent over a short time based on economic or market opportunities.

It is important to be aware that tactical asset allocation strategies present higher risks but also the opportunity for higher returns. It’s a good idea to set percentage limits on asset allocations and time benchmarks for when you may want to exit certain positions. Tactical asset allocation is, in fact, a market timing strategy, but its risk lies more in asset categories rather than individual holdings, and a crucial key for this type of allocation is to actively manage that risk.

To help diversify and manage risk, some financial advisors recommend exchange traded funds (ETFs). These are passively managed funds that can be bought and sold throughout the trading day. While ETFs are passively managed, they provide a means for an investor to tactically expand or shrink exposure to a specific asset class in her own actively managed portfolio. Proponents of ETFs favor them because of their low cost, tax efficiency and trading flexibility.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice. Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

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Danielle Christensen

Paraplanner

Danielle is dedicated to serving clients to achieve their retirement goals. As a Paraplanner, Danielle helps the advisors with the administrative side of preparing and documenting meetings. She is a graduate of the College of St. Benedict, with a degree in Business Administration and began working with Secured Retirement in May of 2023.

Danielle is a lifelong Minnesotan and currently resides in Farmington with her boyfriend and their senior rescue pittie/American Bulldog mix, Tukka.  In her free time, Danielle enjoys attending concerts and traveling. She is also an avid fan of the Minnesota Wild and loves to be at as many games as possible during the season!