Comments on: Three Types of Asset Allocation: Strategic, Tactical, and Core-Satellite – Which is Right for You?

By: Peter

Peter — Wed, 01 Sep 2010 11:22:52 +0000

As I look harder at asset allocation as a strategy, I am not seeing enough about the need to find asset classes that move at different points in time. There is the classic difference between bonds and stocks, but I find that gold is an interesting asset class that has high risk, but moves out-of-sync with other asset classes. In my years of investing in gold, I have been able, using basically asset allocation techniques, to extract all of the money I initially invested in gold as profit, while maintaining the relative size of my gold holdings at the same level as my initial investment. It seems to me that the asset allocation point of view encourages us, when we invest in risky things, to keep the percentage investment in the high risk investment low, and to follow a strategy that continually pulls the profits out of the high risk investment into the less risky, permanent source of our wealth.

It can be tempting, when you are having success with a high-risk investment, to want to put a larger portion of your portfolio there, but you should resist this tendency. You should take the attitude that all money in high risk investments is not really part of your wealth. You have not succeeded in investing in high-risk securities until you have taken your profits out of the high-risk securities.

The asset allocation approach helps achieve all of these things.

By: Kate @ Very Nice Advice

Kate @ Very Nice Advice — Wed, 03 Feb 2010 11:37:41 +0000

Nice article; just researching ways to explain to a client – clearly and simply – the different approaches, and this hits the spot!
Thanks

By: Neal A. Deutsch, CFP

Neal A. Deutsch, CFP — Thu, 28 Jan 2010 16:42:45 +0000

Great article and explaination. A few points to consider when you are out to determine your investment style: risk tolerence, time horizon, tax ramifications, liquidity, goals and objectives as well as other factors are key to determine before your allocation or style of investing. Your point of “overlap” is the most misunderstood defination of diversification: many people think by buying a number of funds they are diversified, not knowing that the internal portfolios of the funds are similar, thus defeating the concept of diversification.

By: Speculation

Speculation — Wed, 27 Jan 2010 23:16:22 +0000

Here is what Jim Rogers has to say in his newest video:

http://bit.ly/7aQ5n7

By: RetirementInvestingToday

RetirementInvestingToday — Wed, 27 Jan 2010 21:31:48 +0000

Personally I’m running and writing about a core-satellite strategy. I have my nominal strategic asset allocation which is moving more towards bonds with every year that I age.

I then run a tactical asset allocation to vary my stock fund allocations. This is based on using a long term stock market valuation method which takes the Real (inflation adjusted) Price and divides it by the Average Real Earnings from the last 10 years.

By: Pop

Pop — Wed, 27 Jan 2010 20:32:13 +0000

I agree that the traditional “strategic” method of asset allocation is the best way for most people, but if letting yourself deviate from that a little bit by doing the core-satellite approach makes you feel like you have a little more control, so much the better. I’ve seen studies showing that investors are happier when they feel like they have control of their performance (even if it’s bad). So I’d much rather see somebody achieve that happiness and limit the damage than commit everything to an active strategy.

By: 2 Cents @ Balance Junkie

2 Cents @ Balance Junkie — Wed, 27 Jan 2010 17:20:00 +0000

This is great information whether you’re a novice or seasoned investor. I like the idea that no single approach is right for everyone. Since I’m all about balance, I guess I favour the Core-Satellite approach,as it gives you the most flexibility. You can allocate whatever percentage you like to each component based on your time horizon and risk tolerance. I do, however, agree that you need to be aware of transaction costs and factor them into your calculations. Thanks!

By: Russ

Russ — Wed, 27 Jan 2010 16:41:22 +0000

I believe in and use strategic allocation strategies only.

Both the tactical and “core and explore” strategies add costs (fees and taxes) and base much of their reasoning on the ability to successfully and consistently make bets on pieces of the market. I don’t believe this is a sustainable strategy over time.

I would rather own the entire market in the lowest-cost manner possible and rebalance on a regular basis to control risk.

You can control your costs and you can largely control your risk exposure; everything else is out of our control. So why pay a premium for something you can’t control?

And I believe this is the best strategy whether you work with an advisor or do it on your own.

Nice post, Jeremy. Thanks.