Tackling Tactical Asset Allocation

Since the market turbulence of the late 2000’s shot investors’ faith in more traditional investing, there’s been quite a lot of discussion of Tactical Asset Allocation.

This form of investing focuses on allocating certain portions of your portfolio to different asset classes, and then ramping up or pulling back on any one of those classes depending on certain factors. The most common of those factors is valuation: if stocks, for example, start to look very cheap based on historical metrics (like price to earnings ratios) you might load up on those. World events might drive some sector rotation as well. Uncertainty in the oil producing regions of the world might convince an investor that there could be an economic slowdown brewing and push them to put more into cash.

Doubts About Tactical Asset Allocation

In a way, it’s a middle ground between trying to pick individual winning stocks and hands-off investing, which focuses on the long term and minimal trading. The problem is, it’s hard to consistently do well.