{"id":590581,"date":"2020-06-28T06:30:22","date_gmt":"2020-06-28T06:30:22","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/2020\/06\/28\/static-vs-tactical-allocation\/"},"modified":"2021-09-14T10:13:49","modified_gmt":"2021-09-14T04:43:49","slug":"static-vs-tactical-allocation","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2020\/06\/28\/static-vs-tactical-allocation\/","title":{"rendered":"Static vs. Tactical Allocation"},"content":{"rendered":"\n

What makes sense and for whom.<\/h2>\n\n\n\n

Our first post<\/a> discussed one of the biggest risk that investors face: sequence-of-returns risk. One way to mitigate this is through asset allocation. You can just put half your investments in equities and half in bonds to reduce your over-all risk. An alternative is tactical allocation<\/a>. In tactical allocation, you use a signal, like an SMA (Simple Moving Average) or equity valuations to switch between equities and bonds. Here, at any given point in time, you are fully invested in one asset class.<\/p>\n\n\n\n

So, which one is \u201cbetter?\u201d<\/p>\n\n\n\n

The answer is, \u201cit depends!\u201d<\/p>\n\n\n\n

It depends on the investor\u2019s tax slab and whether it is going to be a lump-sum investment or a SIP. For lump-sums, investors are better off with a tactical approach (bonus if you are in a lower tax slab.) For SIP investors, static allocation makes more sense because you can maintain proportions without selling the over-allocated asset. And, surprisingly, the frequency of re-balance did not matter for static allocation.<\/p>\n\n\n\n

Re-balance Frequency for Static Allocation<\/h2>\n\n\n\n

Our back-test shows that there is no difference to overall returns between monthly and annual re-balance frequencies<\/em>. Focus on the black line on the following charts.<\/p>\n\n\n\n

Monthly re-balance:<\/strong><\/p>\n\n\n

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