Asset allocation and rebalancing: An old saying says, “Don’t put all your eggs in one basket. It also pertains to financial investments.
Strategic Asset Allocation is the allocation of assets in accordance with a person’s financial objectives. Considering the time horizon allowed for building the corpus and the investor’s risk profile, it looks at the portfolio’s required returns to meet goals.
When it comes to Tactical Asset Allocation, decisions are made based on market predictions. A tactical asset allocation decision is made by an investor who decides to go overweight on stocks, i.e. take a bigger exposure to equities, due of predictions of buoyancy in industry and share markets.
Dynamic Asset Allocation uses pre-defined models to distribute assets among different asset types. Asset class valuations or portfolio performance might serve as triggers for reallocating funds. Dynamic asset allocation removes the element of subjectivity from asset allocation decisions.