What does tactical asset allocation involve?

Tactical asset allocation involves the strategic adjustment of asset allocations in response to market conditions and forecasted economic changes. This approach allows investors to take advantage of perceived short-term opportunities by temporarily deviating from a long-term strategic asset allocation.

By utilizing systematic market timing, investors actively shift their investments among asset classes based on projected market performance, aiming to maximize returns in varying market environments. This flexibility differentiates tactical asset allocation from other strategies that maintain a more static approach to investment distribution.

In contrast, other possible choices reflect different strategies: gradual changes to asset allocation suggest a more passive or systematic approach rather than active market timing; regular rebalancing based on market indices focuses on maintaining a predefined asset mix over time without actively trying to predict market movements; and a fixed mix of investments describes a buy-and-hold strategy that does not consider market conditions or opportunities for enhancement through tactical adjustments.