Asset Allocation – Have You Learned Your Lessons?
Tactical asset allocation is considered by many a mixture between art and science. In the case of science, it requires a profound knowledge about the inner workings of the financial system.
And, in the case of art, it requires an inner instinct, the ability to sniff the hidden opportunities that the market has to offer. So, optimizing strategic asset allocation may not be easy, but it is in your best interest to learn how to do it.
What Is Tactical Asset Allocation
Tactical asset allocation is a strategy, under which you maintain a constant surveillance on the movements of the market. This is done in order to adjust the percentages of assets distributed in different sectors. For example, let’s say that your current asset portfolio is divided between bonds, precious metals, natural resources, real estate and stocks.
Suddenly, you determine that the price of oil is going to stop it’s decline and rise again to the levels of last month. In order to exploit that opportunity, you may sell some of your real estate (which is going through a bubble-period anyhow), and buy some stock from oil companies.
Types Of Assets
There are many types of assets in the market. For example, one of the most renown kind of assets are bonds. Bonds are nothing but loans that are emitted as a security. The loaner receives an interest for the period of time that he has loaned the money to the emitter. There are several types of bonds (fixed rate, variable rate, inflation indexed, among others) and several types of issuers (private companies, supra national agencies, governments, among others).
Another kind of asset is stock. Stock is emitted by companies who wish to raise capital for their organizations. They are usually traded at the different stock markets that are distributed around the world. One of the biggest advantages of the internet is that, thanks to it, you can buy and sell stock from almost any exchange market in the planet.
Other types of assets are real estate, foreign currency and luxuries (like fine pieces of art or collectibles). It will depend on the experience, and knowledge, of the asset manager to determine which is the best one to invest in. And, the only way to do that is to maintain yourself updated on what is happening around the world.
