Allocation Strategies

The right asset mix has a very crucial role in a portfolio’s overall risk and return. Because of this, it is only necessary that the asset mix is able to reflect the goals of a person’s portfolio at all time. To achieve this, there are several asset allocating strategies that a person can employ.

STRATEGIC ASSET LOCATION

This involves a “base policy mix” where assets are combined in proportions based on expected rates of return for each asset class.

CONSTANT-WEIGHING ASSET ALLOCATION

This method allows for the continuous rebalancing of a person’s portfolio. Though there are no definite steps to follow when employing such strategy, it is a commonly followed norm to rebalance a portfolio to its original mix as soon as any of the asset class increases by more than 5% from its original value.

TACTICAL ASSET ALLOCATION

This method allows for returning the overall strategic asset mix to its original form as soon as the short-term profits have already been achieved. In this strategy, a person must closely monitor his portfolio and determine when it is already time to rebalance his portfolio back.

DYNAMIC ASSET ALLOCATION

This involves adjusting the asset mix based on the current market trends and status of the economy. It also seems to contrast what constant weighing allocation does because assets are bought when they are rising in value and sold when declining.

INSURED ASSET ALLOCATION

In this method, a person sets a base portfolio which must be the lowest his current portfolio should reach. Any return that is above the portfolio ensures active management of a person’s portfolio. However, when the portfolio becomes lower than the base value, a person does risk-free asset investments, fixing the base value.

INTEGRATED ASSET ALLOCATION

Integrated asset allocation takes into account the person’s expectations, the changes in the capital markets, and even the risk tolerance involved in investments.

With the said strategies above, a person must exercise utmost care when choosing the perfect strategy for managing his portfolio.