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Asset Management
By Raj Selvaraj
Different Asset Allocation Strategies
Asset marketing is the process of dividing a portfolio into major asset
categories such as cash, stocks, real estate, or bonds. In doing this
there are three main strategies which are:
1. Strategic Asset Allocation
2. Tactical Asset Allocation
3. Market Timing
Strategic asset allocation:
This focuses on designing a portfolio of investments that is suitable
for your needs and sticking with that allocation through all market
conditions. Once an asset marketing to stocks, bond, real
estate, and cash is set, it remains in place for a long period of
time. Due to the market always moving up and down a
strategic
asset allocation will get off target over time.
It is
suggested that an investor should put their portfolios back on track
with the original target mix from time to time, this is called
re-balancing. Re-balancing keeps a portfolio in line with an
investor's goals and objectives, and helps control investment risk.
Tactical asset marketing:
Tactical asset marketing involved forecasting asset-class returns and
increasing or decreasing commitment to an asset class based on the
forecast. Return predictions may be a function of fundamental
variables, for example economic variables, technical variables,
forecast of inflation, recent price trends, earnings or interest-rate
forecasts, or a combination of several variables. A tactical
asset allocation is mainly based on these predictions.
Tactical Asset Marketing is also known as Active Portfolio Management.
Market timing:
This is tactical asset marketing taken to the extreme. It
involves forecasting asset returns and making “all or none'
asset-class bets. A market timing strategy may start the year
100 percent in Treasury bonds and end the year 100 percent in stocks.
No on likes losing money, and no one likes to be out of a bull
market. Market timing solves both of these problems. Although
some investors may believe that there are strategies that will allow
them to successfully weave into and out of the markets, the facts show
that few people actually do so, and those people may be lucky rather
than good. Market timing is not recommended by the
professionals.
No one knows which of these three will work well. But the
best bet is to keep a well-balanced multi-asset-class portfolio that
maintains a strategic allocation over time.
About the Author
Raj Selvaraj is an expert in investing. He has laid out an easy to read and understand guide to the different aspects of asset management. Read the three main aspects of Asset Management.
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