Asset Allocation Model
Asset Allocation Model. Types of models of asset allocation, and which one will work best for you.
Strategic Asset Allocation
Strategic asset allocation is the most consistent strategy. After you have designed a portfolio of investments that cater well to your needs, you will stick to this portfolio through all market conditions. However, occasional rebalancing of the portfolio would be necessary occasionally as markets move up and down over time.
Tactical Asset Allocation
The tactical asset allocation strategy is more flexible than the strategic asset allocation strategy. This is also known as the active portfolio management approach, where you attempt to forecast returns on various asset classes, and then decide the mix of asset classes that should form your portfolio.
Is it possible to time the market? Those who take global tactical asset allocation to the extreme believe that they can outsmart the global markets, and invest in the right markets at just the right time. However, many recent examples demonstrate the failure of this approach. Market timing is highly inconsistent and subjects your portfolio to very high risk; these risk levels are usually far too high for the average investor.
Market timing is tempting, because of the fundamental emotions of fear and greed. These are the basic emotions some people are ruled by. The successful investor knows how to make rational decisions in spite of how they might feel when everyone else seems to be doing something else.
Global Tactical Asset Allocation
The extreme tactical asset allocation model is in many ways akin to gambling, though some investors believe that they can actually time the market and overcome the odds.