What Is Tactical Asset Allocation?

Daniel Penzing
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The Basics of Tactical Asset Allocation

A tactical asset allocation-based portfolio is one in which securities are bought when they are trading at a cheap price and sold when they are trading at a high price. Portfolio management strategies based on such principles, therefore, involve transactions to adjust the weight of investment in different asset classes as the investment outlook changes.

One of the major uses of tactical asset allocation is to lower a portfolio’s volatility. By moving in and out of asset classes based on valuation changes, a portfolio’s volatility can be brought down.

Tactical asset allocation provides an avenue for portfolio diversification. When one scrutinizes a conventional portfolio of stocks, bonds, and cash, it is clear that the portfolio is predominantly made up of stocks. By moving out of stocks during periods of high valuations, a portfolio manager can reduce the impact of volatility that could make the portfolio highly correlated to equities.

Bottom Line

  • Tactical Asset Allocation
  • is different than more traditional approaches to retirement planning because it looks at asset allocation as a dynamic process.**TAA
  • can react to market volatility to help account balances perform more effectively. Furthermore, **TAA
  • also attempts to anticipate market events, such as interest rate hikes, and use these developments to potentially increase returns.

Many investment professionals are incorporating **TAA** strategies into their clients’ portfolios because of its risk/reward trade-offs and competitive returns. All portfolios, no matter the objective, are meant to make your money grow. **TAA** is one of several investment innovation tactics that aims to enhance your chances at growth.