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Which are the Best techniques for asset allocation? | Business Post Hub

Which are the Best Techniques for Asset Allocation?

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The possible amount of return majorly depends upon asset allocation tactics. It is an integral part of maintaining a balance between investment and return. Based upon the allocation, the rate of good return is dependable.

Proper asset allocation denotes whether a total portfolio will be a mix of stocks, bonds, securities and shares, or it will be just a single investment among any of the above mentioned.

However, financial advisors will always suggest an investor create a portfolio in a mixed format, such as a mix of all the possible investment sectors.

A mixed portfolio is often considered a dynamic one as assets are allocated into different sectors. Therefore, possibilities of facing loss reduced because of such segregation.

Undoubtedly the whole process is quite tricky, and to select the most profitable investment scheme, one must know all of them briefly. So here, we will describe few strategies that can help one investor to allocate asset wisely.

Strategic asset allocation

It is basically applicable for a mixed portfolio which determines best each asset class and its expected rate of return. However, before applying this strategy, an investor needs to analyse his risk-bearing and tenure of investment.

After setting up short, medium, and long-term goals, it is time for balancing the portfolio. You may also redirect assets several times for achieving a reasonable return.

It is best applicable for the mixed portfolio, so the chance of risk is less and good return is more. It always says that a diversified portfolio always offers good profit rather than a non-diversified one. This type of asset allocation does not focus on the frequent buy and sell method but hold the shares and equity for a long time to earn a good return.

For instance, if an investor allocates assets as per strategy allocation, then there is a chance of earning a higher return than others. Suppose his portfolio consists of bonds, shares and equity, then total income can be secured from all of these bonds, shares and equities.

Continuous- weighting asset allocation

It is entirely different from strategic asset allocation. Whereas strategic one does not support frequently buying and selling, this type of allocation will insist an investor sell whenever price comes down. Continuous weighing of asset allocation focuses on the theory of sell the share when it stops earning profit.

Generally, when an investor starts working as per this method, then the redirection of asset class becomes more frequent, and the chances of earning profit also become higher.

Time plays an integral role here. According to this strategy, one can utilise the best of business hours. If you look at the graph of the share market, you may discover the graph is spontaneously going up and down. Even the prices of shares continuously change with time.

Therefore, this strategy does not work upon perfect time for sell and buy as anytime the weightage of share price can come down, and that will be the right time to sell the share.

However, many investors avoid this strategy as it has both winning and losing possibilities.

For instance, if you find your existing share running in loss, it does not mean that price will not go upward. Therefore, it will be foolery to predict the price because it does not possess good weightage.

Although there is a thumb rule of this strategy, proper balancing is required if any of the portfolio’s asset class secures more than 5% from its previous value.

Tactical asset allocation –

It has been reported that investors often oppose the idea of strategic asset allocation as they find it very inflexible due to restriction in selling. Moreover, this strategy allocation always compels an investor to keep his investment for the long term.

For this reason, most of the investor would like to follow tactical asset allocation, which offers short-term investment to earn good profit. However, diversification of asset is also required to follow this type of allocation.

It has also been observed that many small investors would like to invest with their borrowed money. To earn good profit, some investors borrow debt consolidation loans with bad credit from direct lender.

Therefore, they never like to invest in long term policies, and for this reason, tactical asset allocation will be good for them. It provides the ease of investment opportunity with a short term asset allocation plan.

Besides, there is the flexibility of rebalancing assets and personalising portfolio as per the financial potency and return requirement. Therefore, it is considered as a more active allocation than others.

However, to achieve a good return, an investor should understand the best short term investment assets that provide him good return. From time to time, rebalancing the portfolio is also required so that you can minimise the possibility of loss.


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