Most people are not familiar with the terms “tactical” or “strategic” investing when we meet them for the first time. With all of the information out there on different investment strategies, it is easy for the common investor to get confused about which strategy is best suited for them. Hopefully, we can clear up the differences between these two investment styles and help you decide which one is best for you.
Both Strategic and Tactical investment styles employ the use of asset allocation models by diversifying small amounts of your assets into a large number of asset classes. In English, this means don’t put all your eggs in one basket. Both Tactical and Strategic managers employ this strategy.
Strategic investing has been around for decades and can best be described as “buy and hold”. Strategic investing, also known as passive investing, uses asset allocation models to invest your funds according to that model, regardless of fluctuations in the market, geo-political concerns, actions by the US Government, the Federal Reserve, etc… Strategic managers will not try to adjust portfolios in tough times because they do not believe in timing the markets.. If it gets tough, tough it out.
Tactical Managers take a different approach. Tactical managers focus on several micro and macro-economic indicators as well as movements by the Fed, US Government Policy and finally geo-political concerns. With this information, they then decide when and how to invest in stocks or bonds, US or International, and even when to move funds to cash. Tactical managers by their nature are usually defensive. As a result they can lag in bull run markets, and will usually get criticized for it. Nonetheless, when you find managers that had positive returns in a year like 2008, they have a strong argument for their case of downside risk management.
So which one is right for you? That is for you to decide. What we find is some combination of the two usually works out best for our clients. Like a college football team, when you let the offensive coordinator do his job and the defensive coordinator do his job, the game usually works out. Special teams also matter, but we will save the special teams and their coach for another discussion. As always, feel free to set up a consultation with our office to learn more about the different styles of investing and which one is best for you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Tactical allocation may involve more frequent buying and selling of assets and will tend to general higher transaction costs. Investors should consider the tax consequences of moving positions more frequently.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not eliminate market risk.
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