Series 6: 7.2.2.2. Actively Managed Strategies: Tactical Asset Allocation

7.2.2.2. Actively Managed Strategies: Tactical Asset Allocation

Unlike a strategic asset allocation model that relies on keeping an optimum portfolio mix to maximize return, the tactical asset allocation model attempts to time the market, moving in and out of asset classes and sectors based on certain indicators of the direction of the market. Because it relies on market timing, tactical asset allocation is considered an active strategy. Strategic asset allocation is considered a passive strategy because it sticks to a chosen allocation, regardless of the performance of the market.

Investors who use active strategies play an ongoing role in choosing and replacing the specific securities in their portfolio. They keep a close watch on their investments and buy and sell frequently to ta