Is strategic asset allocation better than tactical asset allocation?

Asset allocation means to divide your portfolio into different parts and invest them at different stocks, different time-frame and for different returns. It is always better to allocate your assets in building your desired portfolio. This helps one to reduce the risk and capture better returns and desired goals. Experts say that asset allocation helps you to understand the market better as you can judge different investments at the same time and make your further investment strategies. 

Strategic Asset Allocation: This allocation takes a long-term view and an overall risk objective of the portfolio. It is a target allocation of asset classes one expects to have in place for a long period of time. Under strategic allocation, the target allocation is expected to remain the same and the portfolio is balanced overtime to maintain the appropriate allocation needed.

Tactical Asset Allocation: This is a short to medium-term view that looks for available investment opportunities in the market. Under this sort of allocation, one goes more for the investment that seems more attractive. For example, if one has invested 50% in small-cap and 50% in mid-cap and later on mid-cap appears to be more attractive, then he can withdraw from small-cap investment and replace it with mid-cap investment. This allocation allows an investor to move into an out of or overweight and underweight certain areas of the market.

A retail investor is someone who invests in a small amount and to earn profits in a shorter time. So, for someone who does not want to stay invested for long-term, Strategic allocation is not very joyous as he won’t be able to shift investment strategies. However, tactical asset allocation would be a better approach for retail investors due to it’s short-term and less complicated balancing of the portfolio.