Strategic and Tactical Asset Allocation

Asset allocation divides a portfolio among groups such as equities, fixed income, cash, and real assets. The decision establishes which economic risks and return sources dominate the portfolio; the securities selected within each group implement that decision.

Asset Allocation provides the broad framework. It connects objectives, time horizon, liquidity, liabilities, risk capacity, and risk tolerance to target exposures. Allocation alone does not guarantee diversification because several asset classes or funds can still respond to the same underlying risk.

Strategic Asset Allocation sets long-term policy weights and permitted ranges. Rebalancing manages market-driven drift back toward that policy; a genuine policy change follows a change in objectives, constraints, or long-term assumptions.

Tactical Asset Allocation deliberately departs from policy for a limited period under a stated view or rule. An Overweight is a positive active weight relative to a benchmark or neutral allocation; it can be strategic, tactical, or simply the result of market drift.

Questions to Verify

• What objective, liability, or spending need is the portfolio intended to support?
• Which asset classes and look-through exposures are included?
• Are weights measured against gross assets, net assets, or a policy benchmark?
• What target ranges and rebalancing rules apply?
• Is a deviation deliberate, market-driven, or caused by an external cash flow?
• What costs, taxes, liquidity limits, and account restrictions affect implementation?
• Does a tactical position have a size limit, time horizon, review trigger, and exit rule?

Allocation and diversification can change risk, but they cannot guarantee gains or prevent loss. These pages provide general financial education rather than a recommended portfolio mix.

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