What is tactical asset allocation?

It’s an investment strategy that actively balances the three main asset classes – stocks, bonds and cash – within a portfolio to capitalise on current market trends. The aim is to maximise returns and minimise risk.

Where have you heard about tactical asset allocation?

Tactical asset allocation tends to be a short-term strategy that portfolio managers use in the hope of achieving a quick profit for their clients, but it doesn’t always add value. After a tactical move, the manager will return to a more long-term strategy.

What you need to know about tactical asset allocation.

When you create your initial portfolio, it’s based on your investment goals and risk tolerance levels. If you opt for a moderate portfolio allocation, it might be made up of 60% stocks, 35% bonds and 5% cash, for example.

The allocation becomes tactical when it changes depending on predicted market and economic conditions. If your fund manager thinks stocks have become overpriced and a bear market is on the horizon, they might decide a shift towards a more conservative asset mix is needed, such as 50% stocks, 40% bonds and 10% cash.

Find out more about tactical asset allocation.

To learn more about the skill of shifting assets around, read our definition of asset allocation.