Tactical Asset Allocation
Short-term deviations from a strategic allocation, intended to exploit expected differences in asset class returns.
Formula
Test: actual weights differ from strategic targets by a bounded amount, with a stated basis and a horizon for reverting
Unit
%
In depth
Tactical allocation is market timing under a more respectable name, and the evidence on timing across asset classes is discouraging: the decisions must be right on both the exit and the re-entry, and the re-entry is the harder one. Its defensible form is bounded — deviations of a few percentage points within pre-set limits and a stated reversion rule — rather than wholesale moves to cash. It also creates tax and transaction costs that a strategic allocation avoids. Most of the harm comes not from being wrong but from failing to return to the strategic weights after being wrong.
Worked example
A 60/40 investor moves to 45/55 during a decline and waits for clarity. The market recovers 28% before clarity arrives; the tactical shift cost 15% of the portfolio x 28% = about 4.2 percentage points of return.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Tactical Asset Allocation” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.