Tactical Asset Allocation

Ricardo Ribeiro, PRM

It is important to point out that tactical changes are optional.

In other words, if you build a good strategic portfolio and can withstand the losing phases, then you do not need to make any tactical changes.


A tactical strategy can be used to enhance performance and to reduce risk.

One simple example is to stay invested only if the portfolio's assets are rising in price.

Let's say 10% of a strategic portfolio allocation consists of stocks. When stocks are trending up, one stays invested. However, when stocks are trending down, one sell the stocks (in this example, 10% of the portfolio) and hold cash instead.

Another example is to use a value factor.

One would increase the stocks allocation when stocks are undervalued and wait until the stocks reach a fair value (or an overvalued level) to change the stocks allocation back to the strategic level.

Other strategies can be even more sophisticated, but they do not need to be.

Sometimes, simple strategies are way more robust.

The bottom line is:

Tactical strategy is a bunch of rules that guide how and when to deviate from the strategic portfolio.

The rules should also guide the portfolio back to the strategic allocation.

You also have to consider how much time is required to implement a tactical strategy. The strategy itself might be profitable, but it might require too much of your time. You need to balance out the pros and cons.

Once you have a strategy that makes sense to you, put it into the IPS and use the IPS as an execution and monitoring guide.


We do not provide financial advice, and nothing in this article should be construed as advice. The contents of this article are presented ‘as is’ and on an educational and informational basis only. You are advised to consult your financial adviser before using, in any way, the information presented here. We disclaim all liability in relation to this article and the contents of this article to the maximum extent permitted by applicable law. Please read the full disclaimer.

Not Yet Using Upbias Mentor?

Learn to invest by doing, without risking your money.