Strategic vs. Tactical Investing
Ever heard the term “strategic investing”? How about “tactical investing”?
At a glance, you might assume that both these phrases describe a similar investment approach.
While each approach involves the periodic adjustment of a portfolio and holding portfolio assets in varied investment classes, they differ in one key respect. Strategic investing is fundamentally passive; tactical investing is fundamentally active. An old saying expresses the opinion that strategic investing is about time in the market, while tactical investing is about timing in the market. There is some truth to that.1
Keep in mind that asset allocation is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.
Also, investing involves risk, and the return and principal value of investments will fluctuate as market conditions change. Investment opportunities should take into consideration your goals, time horizon, and risk tolerance. When sold, investments may be worth more or less than their original cost. Past performance does not guarantee future results.
Strategic investing focuses on an investor’s long-range goals.
This philosophy is sometimes characterized as “set it and forget it,” but that is inaccurate. The idea is to maintain the way the invested assets are held over time, so that through the years, they are assigned to investment classes in approximately the percentages established when the portfolio is created.1
Picture a hypothetical investor. Assume that she starts investing and saving for retirement, with 60% of her invested assets held in equities and 40% in fixed-income vehicles. Now, assume that soon after she starts investing, a long bull market begins, and the value of the equity investments within her portfolio increases. Years pass, and she checks up on the portfolio, only to learn that more than 60% of the value of her portfolio is now held in equities.
As she is investing strategically, this is undesirable. Rebalancing is in order. By the tenets of strategic investing, the assets in the portfolio need to be shifted, in order to be held in that 60/40 mix again. If the assets are not rebalanced, her portfolio could expose her to more risk than she wants – and the older she gets, the less risk she may want to assume.1
Keep in mind that this article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to work with a professional who can review any tax implications from portfolio rebalancing.
Tactical investing responds to market conditions.
It looks at the present and the near future. A tactical investor attempts to shift the composition of a portfolio to manage risk exposure or to take advantage of new opportunities. This requires something of an educated forecast – two forecasts, actually. The challenge is to appropriately decide when to adjust the portfolio in light of change and when to readjust it back to the target investment mix. This is, necessarily, a hands-on style of investing.1
Is it better to buy and hold, or simply, to respond?
This question has no easy answer, but it points out the divergence between strategic and tactical investing. A strategic investor may be inclined to “buy and hold” ride out episodes of Wall Street turbulence. On the other hand, the tactical investor risks buying high and selling low.
Investors have long debated which strategy is better.
One approach may be better suited than another at a particular point in time. And often, it’s not an all-or-nothing proposition. Both approaches may play a role in your overall strategy.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1. Investopedia.com, August 15, 2019
ABOUT SGROI FINANCIAL
Sgroi Financial is a full service, independent financial planning firm proudly serving the Western New York area since 1971. We offer services that will help you achieve your financial goals including retirement planning, investment management, estate planning, college planning and insurance. We help individuals, families, retirees, working adults, young adults and business owners.
Check out the background of our investment professionals on: BrokerCheck
Securities offered through Cadaret, Grant & Co., Inc., member FINRA/SIPC. Advisory services offered through Sgroi Wealth Advisory Group LLC, an SEC Registered Investment Advisor. Sgroi Wealth Advisory Group LLC, Sgroi Financial LLC, and Cadaret, Grant & Co., Inc. are separate entities.
Due to various state regulations and registration requirements concerning the dissemination of information regarding investment products and services, we are currently required to limit access of the following pages to individuals residing in states where we are currently registered.
Financial Professionals associated with this site are registered to conduct securities business and licensed to conduct insurance business in certain states. Response to, or contact with, residents of other states will be made only upon compliance with applicable licensing and registration requirements. The information in this website is for U.S. residents only and does not constitute an offer to sell, or a solicitation of an offer to purchase brokerage services to persons outside of the United States.