Strategic vs Tactical Asset Allocation; Aggressive vs Defensive Strategy

We all understand that if you want to make more money or keep the money that you already have, you should get involved with some type of investing.  Although it’s easy to just give your money to an advisor and let them handle the rest, nowadays we all should be taking more responsibility for our finances and have a personal strategy that is  best for our needs.

When it comes to allocating your assets, 2 popular options to follow are strategic allocation and tactical allocation

Strategic Asset Allocation

Strategic asset allocation should be used if you are planning a long-term investment portfolio.  Normally this suggests that you subtract your age from 100 to determine the percentage of your portfolio that should be invested in stocks.  For example, a 30 year old should have 70% of their investments in stock and 30% in bonds and cash/money market fund.  Using this basic formula will give you a good starting point. If you want to be a little more aggressive, you can invest a higher percentage into stocks than the model suggests. If you decide to be more conservative, then you would put a lower percentage into stocks.

Tactical Asset Allocation

Tactical asset allocation refers to rebalancing your portfolio based on market conditions.  If the market is expected to do well in the short term, you would then put a higher percentage into stocks. If market is expected to do poorly over short term, you would lower stock percentage and purchase more fixed income securities such as bonds.

Defensive Strategy

If you’re trying to maintain your money and increase your investment value with as low a risk as possible, you would utilize the defensive strategy. This strategy involves investing in Blue chip stocks with low volatility, AAA rated bonds, and US Government bonds

Aggressive Strategy

If you are trying to grow your money as fast as possible and take on a higher risk, then you would try an aggressive strategy.  The aggressive strategy will have you purchasing securities such as high volatile stocks, Investing in put and/or call options, and/or Buying securites on margin.

 

Share