An asset allocation strategy involves deciding how to distribute investments across asset classes like equities, bonds, and cash.

Your choice of strategy significantly impacts potential returns and risks.

Strategic asset allocation

Strategic asset allocation involves setting a target allocation for each asset class based on financial goals and risk tolerance, with periodic rebalancing to maintain this fixed allocation.

Its main advantage is consistency, helping investors avoid impulsive decisions and manage emotional biases.

However, its lack of flexibility can lead to missed opportunities, as it does not adapt to changing market conditions.

Tactical asset allocation

Tactical asset allocation allows investors to adjust their portfolio in response to short-term market conditions, potentially enhancing returns.

This strategy is more flexible and allows for active risk management.

However, it requires significant time, knowledge, and resources to implement effectively without the help of a financial adviser.

The frequent trading involved can also result in higher transaction costs and tax liabilities.

Dynamic asset allocation

Dynamic asset allocation involves frequent portfolio adjustments to optimise performance in response to market changes.

It offers adaptability and can be effective in volatile markets.

However, it demands intensive management and expertise, with higher transaction costs potentially offsetting your gains.

Core-satellite approach

The core-satellite approach combines a stable core of diversified assets with a smaller, actively managed satellite portion.

This strategy offers diversification and customisation, but it requires more attention and expertise than simpler strategies, as the satellite portion may involve more active management.

Additionally, the more frequent trading associated with the satellite investments can lead to higher costs, which need to be carefully managed.

In short, choosing the right asset allocation strategy is a critical decision that should be based on your individual goals, risk tolerance, and market outlook.

To make the most informed choice, it is advisable to consult with an Independent Financial Adviser.

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