Tip of the Month: The difference between strategic and tactical asset allocation

Where are my retirement funds

At Fort Pitt, our financial consultants discuss the overall risk tolerance and objectives with each client to determine an appropriate asset allocation. Once that allocation is determined, our portfolio managers will distribute the capital both strategically and tactically to invest with a focus on what is best for each individual client. So, you may be asking yourself, “What’s the difference?” For the Tip of the Month we’d like to break it down for you.

Strategic asset allocation is a target allocation of asset classes you expect to have in place for a long period of time. For example, an investor might have a balanced portfolio of 50 percent stocks and 50 percent bonds. The target allocation is expected to remain the same and the portfolio would be re-balanced back to the appropriate allocation as needed. Strategic asset allocation looks more at the overall risk objective of the portfolio, and therefore takes a long-term view.

Tactical asset allocation is a short to intermediate-term view that looks for investment opportunities in the market. Tactical allocation might be that within the 50 percent stocks part of the allocation, an investor wants to own more in small-cap companies than large-cap companies because small-caps are seen as being a better investment opportunity right now. When large-cap companies look more attractive an investor might overweight, or put more money into, large-caps and allocate less to small-caps. Tactical allocation allows an investor to move into and out of or overweight and underweight certain areas of the market.

Nathan Boxx, Bradley Newman, Jason Seltzer

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