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

Blanchett, David M.
February 2011
Journal of Financial Planning;Feb2011, Vol. 24 Issue 2, p54
Academic Journal
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.


Related Articles

  • Why Setting an Asset Allocation Policy Is a Bad Idea. Jahnke, William // Journal of Financial Planning;Feb1999, Vol. 12 Issue 2, p26 

    This article deals with the investment policy of financial planners toward asset allocation. The sharp 20 percent decline in the stock market in the summer of 1998 raised questions regarding the wisdom of stocking with an asset allocation policy that fixes asset class weights. Some planners...

  • Parting Thoughts.  // Journal of Financial Planning;Oct2006, Vol. 19 Issue 10, p40 

    The article presents the author's thoughts on false assumptions related to asset allocation, the determinants of portfolio performance, and the determinants of financial success. The dangers of financial planners being lured into thinking that asset allocation policy plays an important role are:...

  • Allocation allocation allocation.  // Money Marketing;11/25/2004, p48 

    Advises how independent financial advisers (IFAs) make appropriate asset allocation decisions. Adoption of portfolio construction tools; Approach that allows IFAs to invest according to their clients' attitude to risk and time to retirement; Question of what of adviser do IFAs really want to be.

  • INVESTING: 8 mistakes you may be making. Brentnall, Vicki // Medical Economics;3/4/2005, Vol. 82 Issue 5, p45 

    Discusses the common mistakes in making investments. Lack of investment strategy; Need to be aware of all the investment risks; Advantages of diversifying investments; Importance of understanding the tax consequences of each investment decision.

  • MPT Was Never Alive. Swisher, Pete // Journal of Financial Planning;Jun2009 Trends in Investing, p16 

    The article presents the author's views on the use of the modern portfolio theory (MPT). MPT was said to have been created for global market equilibrium, as opposed to be an asset allocation tool. In investing, equity, debt and real estate, and derivatives are considered for financial planning,...

  • MULTI-MANAGER VIEW. Smith, Ian // Money Marketing;7/14/2005, p20 

    Presents the author's view on the use of multi-manager funds. Assertion that multi-manager is a means by which independent financial advisors reduce their compliance risk; Statement that multi-manager offering takes away the asset allocation decision; Reference to the investment process as one...

  • Risking Your Money Again? Quinn, Jane Bryant; Ehrenfeld, Temma // Newsweek;11/10/2003, Vol. 142 Issue 19, p43 

    Encourages individual investors to develop a personal investment policy. Determination of personal goals; Choice of appropriate investment depending on the timing of needs; Emphasis on diversification and discipline; Availability of financial planning advice.

  • A balancing act. Hart, Stephen // Money Management;9/23/2010, Vol. 24 Issue 35, p28 

    In this article the author discusses the value of holding long dated bonds in a balanced portfolio. He mentions that the popular misconceptions of the growth assets and of balanced portfolio had distorted asset allocations resulting to an over-allocation to higher risk assets especially...

  • Stock Return Predictability and Asset Pricing Models. Avramov, Doron // Review of Financial Studies;Fall2004, Vol. 17 Issue 3, p699 

    This article develops an asset allocation framework that incorporates prior beliefs about the extent of stock return predictability explained by asset pricing models. We find that when prior beliefs allow even minor deviations from pricing model implications, the resulting asset allocations...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics