Strategic vs. Tactical Asset Allocation: Which Framework Wins?

Strategic vs. Tactical Asset Allocation: Which Framework Wins?

InvestmentNovember 25, 2022

Strategic asset allocation (SAA) and tactical asset allocation (TAA) are different strategies that influence these percentages and how often you change them.

Strategic asset allocation (SAA) and tactical asset allocation (TAA) are different strategies that influence these percentages and how often you change them.

Passive investing vs. active investing. Balanced vs. growth. Bonds, property, equities and cash. All these terms are related to asset allocation, which is the percentage allocated to each asset class in your portfolio. Strategic asset allocation (SAA) and tactical asset allocation (TAA) are different strategies that influence these percentages and how often you change them. Here are the ins and outs of SAA and TAA to help you choose. 

 

The definitions of Strategic Asset Allocation (SAA) vs Tactical Asset Allocation (TAA)

SAA is a long-term and passive investment strategy where rebalancing only occurs periodically.  

TAA is an active management portfolio strategy where allocations are adjusted in response to market trends and economic conditions. 

 

The differences between SAA and TAA

Summarised below are the differences between these two strategies and which one you choose will depend on your experience, risk appetite and financial goals. 

 

STRATEGIC ASSET ALLOCATION
TACTICAL ASSET ALLOCATION
Passive with a buy-and-hold strategy  Active with frequent trading  
Ideal for generating returns over a long-term time horizon  Ideal for generating higher returns in the short-term 
Ideal for:  

  • newer investors 
  • younger investors or  
  • those who want a relatively simple plan. 
Ideal for:  

  • experienced investors who are seeking to maximise returns  
  • those who have the time and energy to monitor and act on market trends. 
Typically more cost-effective  Typically more costly due to frequent trading 
Better for emotional investors  Better for active investors 
A balanced portfolio e.g. 60% in defensive assets and 40% in growth assets  A growth portfolio e.g. 25% in defensive assets and 75% in growth assets 

 

 

What is a defensive asset and what is a growth asset?

Defensive assets (also called income assets) are typically less volatile and generate long-term stable returns. Examples are fixed-interest assets like bonds or cash assets like bank deposits.  

Growth assets are typically riskier but have the potential for higher returns. Examples are shares and property.

 

 

Choosing SAA or TAA for your portfolio:

Seeking investment advice from an accredited and expert Green Associates consultant can help you make the right decision, based on your personal circumstances.  

Seeking investment advice from an accredited and expert Green Associates consultant can help you make the right decision, based on your personal circumstances.  

 

Here are 4 questions as food for thought, so you can come to your first consultation feeling more informed and confident. 

  

1. Are you a younger or older investor? 

This affects your tolerance for risk and impacts how much time you have to recover any losses.


2. How much money do you have to invest? 

SAA is typically more cost-effective and so it may be more suitable for you if you have a smaller balance. 

 

3. How much time do you have to invest? 

Maybe you have a timeframe in mind due to a big life event or decision. SAA is more focussed on the longer-term, while TAA; shorter-term. 

 

4. Are you in a time when markets are relatively stable or volatile? 

When markets are particularly unpredictable, SAA means your portfolio is more exposed to these economic conditions. TAA means you’re in a better position to capitalise on market conditions.   

 

 

What about dynamic asset allocation?

This investment strategy falls in between SAA and TAA and continuously adjusts asset allocation to maximise returns in the medium term.  

  

So, should I do SAA or TAA?

The winner of this battle depends on your personal circumstances, investing experience, risk appetite and financial goals. You might have a better idea of whether SAA or TAA is best for you after reading this article.  

  

  

Take the next step in refining your strategy with qualified investment advice. At Green Associates, our investment advice and planning service, delivered in Canberra, Goulburn and Brisbane, helps you invest to make sure your hard-earned money is working for you.  

 

Speak to our friendly team for a tailored consultation on 1300 815 921 or at info@greenassociates.com.au. At Green Associates, all of our advisers are fully licensed and listed on the ASIC Moneysmart Financial Adviser Register. Green Associates is committed to providing the best solutions for you and your wealth-creation journey.  

Written by

Richard Grimshaw

Financial Planner

Learn More