Strategic asset allocation is a longterm approach based on investor goals from "summary" of All About Asset Allocation, Second Edition by Richard Ferri
Strategic asset allocation involves determining the right mix of asset classes for your investment portfolio based on your long-term objectives. This approach is not about trying to time the market or chase short-term trends, but rather about creating a plan that aligns with your financial goals and risk tolerance. By focusing on the big picture and sticking to your strategic allocation over time, you can potentially achieve better long-term results. Investors should first consider their investment goals, time horizon, and risk tolerance when developing a strategic asset allocation. For instance, if you have a long time horizon and can handle market fluctuations, you may be more comfortable with a higher allocation to stocks. On the other hand, if you have a shorter time horizon or lower risk tolerance, you may lean towards a more conservative mix of bonds and cash. A key aspect of strategic asset allocation is diversification, spreading your investments across different asset classes to reduce risk. By including a mix of stocks, bonds, real estate, and other assets in your portfolio, you can potentially achieve a more stable return over time. This diversification can help mitigate the impact of market volatility and provide a smoother investment experience. Another important consideration in strategic asset allocation is periodic rebalancing. As the value of different asset classes fluctuates, your portfolio may drift away from your target allocation. Regularly rebalancing your portfolio back to your desired mix can help you stay on track with your long-term investment strategy and ensure that you are not taking on too much risk.- Strategic asset allocation is a disciplined approach to investing that focuses on your long-term objectives and risk tolerance. By developing a well-thought-out plan, diversifying your investments, and periodically rebalancing your portfolio, you can potentially enhance your chances of meeting your financial goals over time.
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