In strategic asset allocation, long-term capital expectations are integrated with a client’s goals and a target allocation is established. With tactical asset allocation, adjustments are made based on short-term expectations for an asset class.
I use a combination of strategic and tactical approaches, though the tactical portion is much smaller. Here’s an example of how I employ the tactical approach. In early 2008, I expected the U.S. dollar to weaken so I bought a currency ETF which pits the dollar against the euro. I also bought an ETF investing in oil when it was at $107 a barrel. In July 2008 I closed out both at a profit (at the time oil was at $138 a barrel). While I would probably never fully exit the market, I did reduce the stock exposure for clients to a maximum of 35% and raised cash. All of this helped minimize losses for my clients last year.
Mutual Funds and ETFs