Different Types of Asset Allocation Strategies

Diversifying your asset allocation portfolio requires you to set targets for each asset class before you periodically rebalance them to stay aligned with your financial goals. When it comes to asset allocation, the choices you make will matter a lot because they significantly impact risk management and the type of investment returns you’d want to have. However, with the help of an investment management adviser, you’ll understand how strategic asset allocation works.

Types of Asset Allocation Strategies

Constant-Weighting Asset Allocation

This is a buy-and-hold strategy, even when the values of assets shift and cause drift from what was initially established in the policy mix. For instance, when an asset shows a decline in value, you’d purchase more of that asset and sell it once that asset’s value eventually increases.

Tactical Asset Allocation

This strategy can be described as moderately active because the overall strategic asset mix is only returned to when the desired short-term profits have already been achieved. Although this is all about capitalizing on exceptional or rare investment opportunities, it also requires a certain degree of discipline to recognize when these opportunities have already run their course before the portfolio is rebalanced to its long-term asset position.

Dynamic Asset Allocation

This strategy requires constant adjustment of the asset mix through the rise and fall of the market scene and the economy. Using this strategy means selling declining assets and buying increasing ones.

Insured Asset Allocation

This strategy involves the establishment of a base portfolio value. The portfolio’s drop to the base value would prompt you to invest in risk-free assets, reallocate your assets, and even change your strategy.

Integrated Asset Allocation

This strategy is broader than the others because it considers the expectations, the actual changes in capital markets, and the investor’s risk tolerance.

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