Tactical Asset Allocation (TAA): Definition and Example Portfolio

Tactical asset allocation (TAA) is a strategy that seeks to improve portfolio returns by actively adjusting the asset allocation in response to changing market conditions. This is in contrast to traditional asset allocation, which is based on a long-term view of the market and does not make frequent changes.

TAA is often used by investors who believe that they can time the market and take advantage of short-term opportunities. However, it is important to note that TAA is a more risky strategy than traditional asset allocation, and there is no guarantee that it will outperform a buy-and-hold strategy.

There are a number of different ways to implement TAA. One common approach is to use a trend-following strategy, which involves buying assets that are rising in price and selling assets that are falling in price. Another approach is to use a contrarian strategy, which involves buying assets that are out of favor and selling assets that are in favor.

The specific assets that are included in a TAA portfolio will vary depending on the investor's risk tolerance and investment goals. However, some common asset classes that are used in TAA portfolios include stocks, bonds, commodities, and real estate.

Here is an example of a TAA portfolio that might be used by an investor who is looking for moderate risk and returns:

* 60% stocks
* 30% bonds
* 10% commodities

This portfolio would be rebalanced on a regular basis, such as once a month or once a quarter. The rebalancing would involve selling assets that have performed well and buying assets that have performed poorly.

It is important to note that TAA is not a get-rich-quick scheme. It is a long-term investment strategy that can help investors to improve their returns over time. However, there is no guarantee that TAA will outperform a traditional asset allocation strategy.