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What is Global Tactical Asset Allocation?

M. McGee
M. McGee

Global tactical asset allocation is an investment strategy where investors attempt to make money off of temporary imbalances and shocks in global markets. In essence, when investors notice there will be a shortfall in product supply, a spike in currency value or a jump in a stock price, they invest right before it happens. This allows them to make a great deal of money very quickly, and then they sell before the market restabilizes. Global tactical asset allocation is usually concerned more with short-term investments and high-yield derivatives like currency and futures.

Investors that utilize a global tactical asset allocation strategy make investments all over the world to capitalize on separate growing seasons and production methods. The term is actually a combination of various investing terms that sum up the strategy. The global part refers to the scope of the investments. In order for this strategy to work, it needs access to a huge amount of markets; otherwise, it doesn’t have access to the volatility it needs to succeed.

Man climbing a rope
Man climbing a rope

The tactical part of global tactical asset allocation refers to the time the money spends invested. In a tactical investment, the money enters the system and leaves within a short period, anywhere from a few days to a few months. The vast majority of tactical investments are short-term, since medium- and long-term investments will allow the market to stabilize before the investment makes the desired amount of money.

Asset allocation refers to the method of investing. These investments require dedication to find and split-second timing to execute. As a result, it is typically better for an investor to leave it in the hands of a professional broker than attempt it himself.

A typical global tactical asset allocation investment works the same, regardless of where the money goes. The broker notices a potential imbalance in a market, often a short supply on a raw material or food good. They quickly invest money before the price begins to climb. This draws attention to the imbalance and creates a buying frenzy, which artificially raises the price even higher. Lastly, the broker sells right before the peak when there is still interest in the product.

Since the entire global tactical asset allocation strategy relies on exploiting volatile markets, there is a significant risk. If the timing is off on entering or leaving the investment, it could ruin the entire project. Since it is so risky, most investment houses believe that investors should limit their involvement to a small percentage of their portfolio.

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