Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Strategic Asset Allocation

What it is:

Strategic asset allocation is the practice of realigning a portfolio's asset composition in order to accommodate changes in market climate.

How it works (Example):

Portfolios are made up of different asset classes, with each asset class comprising a certain percentage of the total portfolio (i.e. asset allocation). Asset classes react differently to changes in the economic and market outlook. Strategic asset allocation involves changing these percentage allocations in response to expected shifts in the market. For example, if analysts foresee an imminent upswing in the equity markets, an investor may want to increase the percentage of her portfolio allocated to stocks

Why it Matters:

By employing strategic asset allocation, investors and investment managers are able to make adjustments intended to reduce the risk of loss and/or increase potential for reward in advance of a forecasted shift in market trends.