TITLE

Is Buy and Hold Dead? Exploring the Costs of Tactical Reallocation

AUTHOR(S)
Blanchett, David M.
PUB. DATE
February 2011
SOURCE
Journal of Financial Planning;Feb2011, Vol. 24 Issue 2, p54
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
There are important costs" an adviser should consider when implementing a tactical asset allocation strategy for a client. The research conducted for this paper suggests that in order to achieve similar risk-adjusted performance as a static portfolio with the same equity allocation, one must be able to correctly select the outperforming asset class (either bond or equity) approximately 66 percent of the time, ignoring taxes. In order to achieve similar risk-adjusted performance as a static portfolio with the same equity allocation on an after-tax basis, one must be able to correctly select the outperforming asset class approximately 70 percent of the time. The likelihood of a tactical approach outperforming a static allocation decreases further when considering additional costs incurred by tactical investors, such as additional trading expenses. Therefore, a long-term static allocation strategy is likely the approach that will lead to higher risk-adjusted performance for the majority of investors.
ACCESSION #
58103582

 

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