Asset Management

Different Asset Allocation Strategies

Asset marketing is the process of dividing a portfolio into major asset categories such as cash, stocks, real estate, or bonds. In doing this there are three main strategies which are:

1. Strategic Asset Allocation
2. Tactical Asset Allocation
3. Market Timing

Strategic asset allocation:

This focuses on designing a portfolio of investments that is suitable for your needs and sticking with that allocation through all market conditions. Once an asset marketing to stocks, bond, real estate, and cash is set, it remains in place for a long period of time. Due to the market always moving up and down a strategic asset allocation will get off target over time. It is suggested that an investor should put their portfolios back on track with the original target mix from time to time, this is called re-balancing. Re-balancing keeps a portfolio in line with an investor's goals and objectives, and helps control investment risk.

Tactical asset marketing:

Tactical asset marketing involved forecasting asset-class returns and increasing or decreasing commitment to an asset class based on the forecast. Return predictions may be a function of fundamental variables, for example economic variables, technical variables, forecast of inflation, recent price trends, earnings or interest-rate forecasts, or a combination of several variables. A tactical asset allocation is mainly based on these predictions. Tactical Asset Marketing is also known as Active Portfolio Management.

Market timing:

This is tactical asset marketing taken to the extreme. It involves forecasting asset returns and making “all or none' asset-class bets. A market timing strategy may start the year 100 percent in Treasury bonds and end the year 100 percent in stocks.

No on likes losing money, and no one likes to be out of a bull market. Market timing solves both of these problems. Although some investors may believe that there are strategies that will allow them to successfully weave into and out of the markets, the facts show that few people actually do so, and those people may be lucky rather than good. Market timing is not recommended by the professionals.

No one knows which of these three will work well. But the best bet is to keep a well-balanced multi-asset-class portfolio that maintains a strategic allocation over time.