What are strategic and tactical asset allocations?

Investing is a bit like planning a long car journey. You map out your route with care, service your vehicle and pack essentials, but once you hit the road, surprises are inevitable. Bad weather, roadworks or traffic may require you to take decisions in the moment, even though your destination remains unchanged.

Investing works in much the same way. Success comes from balancing your investment objectives with the flexibility to make short-term adjustments along the way. In the world of investing, these two approaches are known as:

• Strategic asset allocation (SAA): Your long-term route map
• Tactical asset allocation (TAA): Your short-term driving decisions

At JioBlackRock, we encourage a disciplined investment approach to help investors stay on track despite market movements. We do this by combining a steady long-term plan with the ability to adapt when needed.

Strategic asset allocation (SAA) is like setting your GPS before a journey. It’s the route for your investment portfolio. In investing terms, this means deciding how much of your money goes into different asset classes like equities, bonds, gold or cash based on your investment objectives and the level of risk you are comfortable with. Once set, these allocations usually stay steady, providing reliability as you travel towards your financial destination.

1. Your risk profile: Just like some travellers prefer the safest, smoothest highways while others don’t mind a few bumpy shortcuts for a faster trip, your risk profile determines your investment route. We select assets based on your comfort, ability and willingness with risk and your investment objectives.

2. Your investment objectives: Whether you are planning a short trip (like saving for your child’s education in five years) or a long expedition (such as building a retirement fund over 25 years), your investment objectives and timelines help us choose the right mix of assets for your journey.

3. Return expectations for each asset: When designing your route, we also consider how different assets are expected to perform. Equities might offer the swift route but with more twists and turns, while bonds provide a steadier, slower path. We build your SAA by balancing these return expectations, aiming for a smooth journey.

Even with careful route planning, you may hit setbacks and need to rethink. In the world of investing, these are the market’s twists and turns: economic shocks, interest-rate changes, inflation spikes or the impact of global events.

That’s where tactical asset allocation comes in. TAA is about making opportunistic changes to your investment journey when conditions demand it. This may require shifting your portfolio to capture opportunities or protect against risks without losing sight of or changing your long-term plan.

TAA keeps your journey flexible, helping you stay on track.

Suppose an investor’s SAA is:

• Equities: 60%
• Fixed income: 40%

Now, imagine market conditions turn volatile. This could be triggered by factors such as slowing economic growth, rising geopolitical tensions or changes in monetary policy. The tactical response would be to reduce exposure to riskier assets, such as equities, and increase allocations to defensive assets, like fixed income and cash.

The above example is for illustrative purpose only and it not recommendatory.

For example:

Tactical adjustment:

• Equities: 55%
• Bonds: 45%

The above example is for illustrative purpose only and it not recommendatory.

This shift aims to protect capital and manage risk during uncertainty. Equity exposure is reduced and cash is kept flexible for future opportunities. Once market conditions stabilise, the portfolio can be rebalanced back to its original strategic allocation or adjusted further based on new data.

Importantly, tactical adjustments are not only about managing risk. Whenever our investment team identifies opportunities, they advise clients to tactically increase their allocation of the relevant asset class. At JioBlackRock Investment Advisers, tactical changes are advised as part of ongoing monitoring of market conditions and investment opportunities.

Without a disciplined approach to asset allocation, it’s easy to drift off course. You might over-allocate to a single asset class like piling into equities in a bull run, taking on more risk than you realise. Or you could get stuck in overly conservative investments and miss out on growth opportunities.

Over time, this can lead to:

• A portfolio that’s either too risky or too safe, and likely to underperform
• Delays in reaching your investment objectives
• Unnecessary stress from reacting to every market move

With SAA and TAA in place, your portfolio gains structure, resilience and focus helping you stay on track.

With SAA and TAA in place, your portfolio gains structure, resilience and focus helping you stay on track.

At JioBlackRock Investment Advisers, we start by getting to know you: your investment objectives, Investor Type and time horizon. From there, we design your SAA, your long-term route map advising tactical shifts (TAA) only when the data supports it. The result? An investment solution that adapts to the market but never loses sight of your destination.

Approval no: 36655