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What is Strategic Asset Allocation?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 June 2018
  • Copyright Protected:
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    Conjecture Corporation
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Strategic asset allocation is an approach to investing that involves making conscious selections regarding the types of assets that will be part of the investment portfolio. This systematic approach to buying and selling investments is usually based on the short-term and long-term financial goals set in place by the investor. The goal is to generate the most revenue while at the same time keeping the level of risk to the investor as low as possible.

The creation of a strategic asset allocation fund often begins with an assessment of the attitude of the investor toward the investment process. This helps to identify the different types of investment options that are a good fit for the investing style of the individual. For example, if the investor tends to be very conservative when it comes to buying and selling assets, that is an indication that a strategy that focuses on options that low in volatility and are likely to yield a decent return over the long term would be a proper foundation for the portfolio. On the other hand, an investor who is more of a risk taker may be willing to acquire investments that are likely to yield a higher rate of return, but also have a higher degree of risk.

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Along with stocks and bonds, strategic asset allocation plans normally involve assets like real estate, jewelry, and commodities. For short-term investments, the investor may also engage in currency trading to generate fast profits. Putting together a model of strategic asset allocation may also include the acquisition of other assets that are likely to increase in value, like antiques or business ventures where the investor functions as a silent partner in a takeover bid.

Going with strategic versus tactical asset allocation means that the investor is primarily concerned with long-term returns. However, that does not mean the investor may not be open to some opportunities that are likely to yield a return in a short period of time. As part of the overall plan, the investor may choose to build a foundation of assets to hold onto for a number of years, but also set aside funds to engage in investments that are projected to increase in value for a short time, selling them as they begin to level off.

At its best, a solid approach to strategic asset allocation will provide a level of security that is constant from year to year, while increasing the net worth of the investments that make up the portfolio. The strategy is amended and adjusted when and as needed, as long as the adjustments help to keep the investor on track to achieve his or her long-term goals. In many cases, maintaining a working relationship with a financial adviser who understands and supports the financial goals of the investor will help to enhance this process.

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