Asset Allocation Strategy

The Arbor Asset Allocation Model Portfolio (AAAMP) uses a tactical or active asset allocation strategy instead of a buy and hold strategy. The key to a successful tactical strategy is to continually analyze what the most effective mix of investment opportunities is. This involves fundamental research and technical market analysis to determine the risk/reward opportunity of all assets. Then, while maintaining a properly diversified portfolio, the AAAMP places an over weighted allocation to asset categories with good value and an under weighted allocation to over priced asset categories.

Flexibility makes an active strategy superior to a buy and hold strategy. Flexibility gives an investor the opportunity to keep losses small in a bear market. By avoiding large losses in a portfolio, an investor not only loses less money, put preserves capital to take advantage of compounding during the next rally. If an investor loses 50% of a portfolio, it takes a 100% gain just to get back to breakeven. If an investor loses 10% of a portfolio, it only takes an 11% gain to get back to breakeven.

An active asset allocation strategy has kept the AAAMP under weighted in stocks at peak prices and over weighted in stocks at bargain prices. The overall effect has been to greatly reduce portfolio volatility (risk) and boost long term returns by preserving capital in bear markets for investment when assets are undervalued. Sometimes this means "hiding" in cash when risk management analysis dictates.

Key Benefits to a Tactical Asset Allocation Strategy

The key benefit is the ability to change your asset allocation in asset categories, subcategories, and individual investments. Economics, politics, and the volatility of the market itself change the opportunities and risk of each asset allocation. Therefore it takes time and knowledge to properly research the investment climate and the different opportunities and risk involved with each. It is no different than any other investment strategy except risk management analysis and portfolio re-balancing are ongoing.

Determining which assets maximize potential rewards and minimize risk make knowledge and research a critical part of any investment strategy. In general, individual investors have not been as successful as they would like to be because they either invest in institutions (Le. mutual funds, pension plans) which results in over diversification; or lack the time, resources, or knowledge to make proper asset allocation decisions.

The Arbor Investment Planner can save you time and provide the information needed to self direct your investment portfolio with confidence. Get started today!