Tactical Asset Allocation - TAA

  

See: Strategic Asset Allocation.

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Finance: What is a Strategic Asset Alloc...6 Views

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finance a la shmoop what is strategic asset allocation all right well it's

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being smart investing wisely diversifying betting on tailwind and [Pie chart showing portfolio areas]

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avoiding headwinds and that's about it that's what the way cooler and fancier [Definition of strategic asset allocation]

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sounding strategic asset allocation term actually means

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yeah strategic so what does that imply well think about it in context if you're

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92 years old and you have 300 grand your name and you're still able to run a 20 [Old guy holding stacks of money]

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minute mile well then you can't risk investing in equities at least not all

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your money in them in the short run they're way too volatile they go up [Value of equities going up and down]

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there to go down they go sideways they go bankrupt and it's likely that your

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remaining run is well short you'll need the money so you can't handle the risk [Gravestone for the old guy]

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of equities dropping if 40% in value over a two-year period which seems to [40% drop shown on the chart]

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happen to them every decade or two instead you need to be strategic about

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the dough and the time you have left and if you're 19 and you just inherited dear [Clock ticking]

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old uncle Earl's oil fortune he calls it Earl over very long periods of time the [Kid walks up to a vault full of money]

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market has historically gone up and about 8 9 10 percent a year or something

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like that and especially given that you don't need the money today

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well you strategically almost can't afford to not be invested in equities ie [Kid holding bags of cash]

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the stock market no reason to hold almost any bonds at this stage in your [Kid throwing the bonds into the bin]

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life you don't need the cash you don't need the safety you don't need the

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liquidity because your timeline there is endless like you probably have half a

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century or more before you even begin to feel old being strategic about your

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investing at this stage is the difference in compounding over say a 50

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plus year period at only four or five percent or eight nine ten maybe twelve [Graph showing balances after different compound interest rates]

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percent if you get a little bit lucky and at the very end when Kingdom Come

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comes well the winner as you know is the one who can buy the most toys [Angel rescues rich kid]

Up Next

Finance: What is asset allocation?
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What is asset allocation? Asset allocation is the process of executing an investment strategy that is tailored to a particular investor’s risk to...

Find other enlightening terms in Shmoop Finance Genius Bar(f)