What is the difference between strategic and tactical asset allocation?
Strategic asset allocation is a passive, buy-and-hold strategy where assets are allocated among the general categories of cash and cash equivalents (money market funds, etc.), debt (notes and bonds), and equity (stock). Arguments among academics and investment professional exist as to the impact strategic asset allocation has on total return. Some studies suggest it accounts for over 90% of the investment return. In other words, individual security selection may be far less important than the proportion given to the asset classes. Tactical asset allocation is an active investment strategy incorporating market timing, contrarian investing and other techniques. It is a trading strategy rather than a buy-and-hold strategy.
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