Strategic, Tactical, or a Little of Both?

Local Financial Advisor Debates Asset Allocation Approaches for the Markets Ahead

Jan 12, 2010, 08:00 ET from Navigation Financial Group

DALLAS, Jan. 12 /PRNewswire/ -- Managing money means decisions, decisions. Active or passive? Growth or value? Domestic or global? And in today's transitioning market environment where economists debate whether the recovery will take a V, W, or L shape, another key question has emerged: Strategic or tactical?

Independent financial advisor Clyde Wyatt explains that both strategic and tactical approaches to asset allocation are rooted in the principles of Modern Portfolio Theory (MPT) which supposes that historical performance of each asset class should be the basis for creating an optimal asset mix that strives to maximize return and temper risk. However, the two apply MPT differently.

"Tactical asset allocation typically responds to current economic or market conditions, whereas current conditions don't play a central role in determining a strategic asset allocation," says Wyatt.

With a strategic asset allocation, investors typically buy, hold, and rebalance periodically. Trades aren't made based on market moves, but rather when personal circumstances change or asset allocations stray too far from the ideal percentages.  Using a tactical approach, investors evaluate leading indicators for various markets, sectors, and asset classes to identify emerging opportunities, possibly making more frequent asset allocation shifts to capitalize on perceived opportunities to potentially boost total portfolio return and reduce risk.

So which approach is better? According to Wyatt, neither is appropriate for all investors and in all markets. He describes secular bull markets as "sailing markets," where the prevailing economic winds are the prime driver of returns. Wyatt suggests that strategic asset allocation might have greater success when the positive winds of a sailing market blow. Conversely, secular bear markets are described as "rowing markets," in which headwinds require considerable work to generate competitive returns and reduce market risk. "In that environment, tactical asset allocation could post better returns," says Wyatt.

Today's investors clearly face significant challenges. Impacted by 2008's losses and yet encouraged by 2009's broad-based market rebound, investors look ahead anticipating more volatility and a likely period of relatively modest returns. Many no longer expect to reach their goals by following the "sailing" strategies that worked so well in the great bull markets of the 80s and 90s and are integrating elements of a "rowing" strategy that could be more appropriate for this decade's challenging markets.

"Today's ideal vessel may be the Greek Man-of-War, where sails were supplemented with banks of paddles to enable oarsmen to maneuver in rough seas or battles," says Wyatt.

The transitioning market presents a great time to review asset allocation strategies. A professional financial advisor can help investors gauge whether a strategy accurately reflects individual temperament, time frame and goals and make necessary adjustments should it be beneficial to integrate both strategic and tactical approaches.

Navigation Financial Group

For over 30 years, Navigation Financial Group has been assisting clients in their quest to achieve financial freedom and independence. The firm takes pride in building long-term personal relationships with its clients, and has model portfolios for each investor's unique objective and risk tolerance. As an independent firm, Navigation Financial takes an objective stance when providing client advice and has access to a wide range of products, services and leading technology. Based in Dallas, with satellite offices in Amarillo, Angleton and Canyon, the firm serves individuals, families and businesses. Learn more at

SOURCE Navigation Financial Group