An asset class is a group of securities that have similar financial characteristics, generally behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds), and cash equivalents (money market instruments). Each of these asset classes is expected to reflect different risk and return characteristics, and perform differently in a specific market environment.
Asset Allocation is an investment strategy that seeks to balance risk and reward by apportioning the portfolio’s assets over various asset classes, in accordance with an investor’s goals, risk tolerance, and investment horizon. The consensus among most financial professionals is that asset allocation is the most important decision that contributes to the overall performance of a portfolio over time. In other words, selection of individual securities is secondary to the way an investor allocates assets to various asset classes.
Tactical Asset Allocation
Tactical Asset Allocation is an active portfolio management strategy that rebalances the percentage of assets held in various categories to take advantage of market pricing anomalies or strong market sectors.