Elearnmarkets - Financial Market Learning
  • Categories
    • Basic Finance
    • Derivatives
      • Futures
      • Options
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
  • Courses
  • Webinars
  • Stories
Elearnmarkets - Learn Stock Market, trading, investing for Free
  • Categories
    • Basic Finance
    • Derivatives
      • Futures
      • Options
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
  • Courses
  • Webinars
  • Stories
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Fundamental Analysis
guide to strategic asset allocation

Strategic Asset Allocation – Definition, Process and Advantages

Elearnmarkets by Elearnmarkets
August 28, 2023
in Fundamental Analysis
Reading Time: 6 mins read
0
2.1k
VIEWS
Share on FacebookShare on XShare on WhatsApp

Listen to this:

To understand Strategic Asset Allocation, let us know what is Asset Allocation, first. In simple words, it is a process of distributing the investor’s savings among the various asset classes.

So, by definition Asset Allocation is allocating funds to different asset classes based on the risk appetite of an investor.

Table of Contents
What is Strategic Asset Allocation?
When this need to be applied
Advantages of Strategic Asset Allocation
How does strategic allocation process work
Strategic Asset Allocation vs Tactical Asset Allocation
Key Takeaways

Now, Strategic Asset Allocation is one of the important concepts in portfolio management theory.

The two main principles are :

  • Diversification of portfolio
  • Reduced Risk with good returns

What is Strategic Asset Allocation?

It is a traditional approach to building a long term portfolio which is purely based on the needs and preferences of the individual’s long and short term goals.

RelatedPosts

How to Identify Thief Companies in the Stock Market? 2

How to Identify Thief Companies in the Stock Market?

September 30, 2023
178
Everything you should know about Dividend Investing 3

Everything you should know about Dividend Investing

September 14, 2023
5.1k
7 rules of Growth Investing 4

7 rules of Growth Investing

September 13, 2023
4.1k

This type of allocation is done with a goal to generate maximum returns while keeping the risks in control which is acceptable to the investor.

Now, talking about strategic asset allocation, portfolio re-balancing is also an important concept. As the market is dynamic there is a constant need for periodic re-balancing of the portfolio.

Lets understand this concept with an example:

Suppose a portfolio has been constructed with 60% debt and 40% equity in the beginning. But at the end of the year when the portfolio was reviewed, it was found out that equity now represents 50% of the portfolio as the equity market had performed well during the year. So how do we re-balance it to its original?

The equity portion will be sold to bring it to 40% and with that proceeds debt will be bought in order to bring it up to 60%, as shown in the table below:

Strategic Asset Allocation - Definition, Process and Advantages 1

Learn basics of finance with Invest in Yourself course by Market Experts

When this strategy need to be applied?

  • Risk Averse Investors – This type of allocation helps the risk averse investor based on its investment profile. This allocation is generally for the risk averse investors. A group of asset classes are made taking into consideration the investor profile in order to mitigate the concentrated security risk and subsequently generate average returns.
  • Novice Investor – The Newbie Investors who wants to generate returns from the markets.
  • Long term investors – The Long term investors who do not want to time the market or get involved in the complex process of stock picking and wants to invest for long term.

Advantages of Strategic Asset Allocation

  • It is a fixed investment portfolio for a risk averse investor.
  • This type of portfolio is relatively easier to maintain due to the simple approach of the passive form of portfolio diversification management.
  • Only when the allocation is dis-proportioned then re-balancing is done in order to bring the portfolio into its original form.
  • These are made based on the profile of the particular investor which helps the investor to get appropriate returns as per his preferences.
  • This strategy is for amateur investors who wants to invest in the markets with calculated risks.

How does strategic allocation process work?

Working of strategic allocation process

Strategic Asset Allocation vs Tactical Asset Allocation

STRATEGIC ASSET ALLOCATION TACTICAL ASSET ALLOCATION
Need based approach of portfolio management. View based approach of portfolio management.
Passive form of investment. Basically active form of managing the protfolio.
Goal oriented approach which means that the portfolio is constructed keeping in mind the risk appetitie of the investor and short term as well as long term goals. Return oriented approach wherein the sole motive is to out perform the underlying benchmarks and generate higher returns.
This allocation strategy are mostly for the conservative investors. This strategy are mostly for the aggressive investors.

Key takeaways:

  • Strategic Asset Allocation is a traditional approach of managing investments which takes the investor’s profile into account and targets to meet the desired goal keeping the risks at bay.
  • Re-balancing of the portfolio needs to be done periodically in order to maintain the proportion of the assets allocated in the beginning.
  • This allocation process starts by assessing the types of risk, investment horizon, allocating the assets accordingly to finally monitoring and re-balancing the portfolio as per requirement.
  • Strategic allocation uses diversification to invest the funds of the long term investors so as to generate returns as well as keep controlled risks on the investments.
  • The most important difference between the Strategic and Tactical Asset allocation is that strategic is need-based and tactical is a view based asset allocation approach. For distributing you saving across various asset classes, you can take assistance of Kredent Money App.
Tags: asset allocationintermediateinvestment strategyportfolio diversification
ShareTweetSend
Get Kotak Offer Get Kotak Offer Get Kotak Offer
Previous Post

Auto Industry reeling under BS-VI compliance

Next Post

Gartley Pattern – Steps to Identify it with entry rules

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

How to Identify Thief Companies in the Stock Market? 5
Fundamental Analysis

How to Identify Thief Companies in the Stock Market?

September 30, 2023
178
Everything you should know about Dividend Investing 6
Fundamental Analysis

Everything you should know about Dividend Investing

September 14, 2023
5.1k
7 rules of Growth Investing 7
Fundamental Analysis

7 rules of Growth Investing

September 13, 2023
4.1k
A Comprehensive Guide: 4 Ways to Pick Best Stocks for Long Term Investments 8
Fundamental Analysis

A Comprehensive Guide: 4 Ways to Pick Best Stocks for Long Term Investments

August 7, 2023
5.5k

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Elearnmarkets Logo

Follow Us

Facebook-f Twitter Instagram Linkedin-in Youtube Telegram

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Download App

Playstore logo
Download on app store

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Marketshala
  • Miscellaneous

Popular On Elearnmarkets

  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Vishal Malkan
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Vishal Malkan
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Stock Market for Beginners
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Stock Market for Beginners
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Relative Strength Index
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Relative Strength Index
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati

© 2023 Elearnmarkets. All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling
  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Get Elearnmarkets App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars
  • Stories

© 2020 Elearnmarkets All Rights Reserved