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Strategic and tactical asset allocation are two of the most well-known investment strategies.

Strategic asset allocation is a portfolio strategy where target allocations for various asset classes are set and rebalanced periodically.

Tactical asset allocation is a strategy that strives to take advantage of market trends or economic conditions by actively shifting a portfolio’s allocations.

Tactical asset allocation, at first glance, seems to be the answer to “what adjustments can I make to help protect my portfolio from further declines?”

However, investors deciding to implement a tactical asset allocation strategy must be right five times.

  1. They must identify a reliable indicator of short-term future market returns,
  2. time the exit of a specific asset class or market down to the precise day,
  3. time re-entry into a specific asset class or market down to the exact day,
  4. decide on the size of the allocation and how to fund the trade,
  5. execute the trade at a cost that is lower than the expected benefit.

A savvy or lucky investor may be able to strike gold once, but the odds aren’t in their favor.

Being right on all five decisions is not much different from a 5-leg parlay in betting. A parlay is when a bettor makes multiple wagers and ties them together in the same bet.

The odds of winning a 5-leg parlay are 22 to 1. Bet $100, win $2,200. There is a massive upside if the five teams you picked win. However, if you lose one of the five games, you lose the bet. The implied odds of winning this parlay are 4.55%.

The odds are stacked against tactical investors. They must have the skill and ability to execute the five factors above consistently over time. It won’t be easy, and in the long run, it’s probably unlikely. 

Any opinions are those of John Geffert and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

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