Tactical Asset Allocation - TAA

  

See: Strategic Asset Allocation.

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Finance: What is asset allocation?1 Views

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finance- a la shmoop. what is asset allocation? alright well we have one

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basket, and we have all of our eggs and we have enemy boulders ditches and speed [girl holds basket]

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bumps in our way. they're all out to get

00:15

us. and everything's fine as we walk along

00:17

the path of life until one day, yeah oops carnage. well how do you avoid whoops in

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the land of finance? well there are a couple of key things to keep in mind and

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in baskets. first investments in an of an asset class like oil or transportation

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or commodities like cotton or technology like software, very roughly tend to all

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move together like Canadian Geese in the spring. that is the price of oil

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controlled by Royal Dutch Shell, correlates almost exactly with the price

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of oil controlled by British Petroleum or BP. there are two different stocks but

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they generally move in lockstep so if you invested in one company odds are [man sits on mossy bench]

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good that its performance will have been very similar to that of all of its

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competitors in the same oil producing space. oil is an asset and the notion of

01:10

intelligent asset allocation is that you want to diversify away risk in your

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portfolio by diversifying the asset classes in which you put your dough. so

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if you wanted to be broadly exposed to the S&P 500 with its dozen or two asset

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classes, well you'd want to pepper your eggs in some semi even distribution may be across baskets in telecommunications real estate utilities retail insurance

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banking and so on. such that when those potholes come along and you trip in one [eggs put in a line of baskets]

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and you most certainly will and the basket ends up looking more like paper

01:46

when you stand up because you smushed it. well then you still have eggs to cook

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from other baskets you put your money in. if that still doesn't work well maybe go

01:54

vegan. [girl stands in kitchen with empty basket and fruits on the counter]

Up Next

Finance: What is a Strategic Asset Allocation?
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Strategic asset allocation means allocating your assets...strategically. Yup, no crazy plot twists here.

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