fbpx

What will you do when your money works for you? | Call 1-800-584-3652 | Account

investment terms and strategies

Strategic vs Tactical Investing

How do these investment approaches differ?

Provided by TechGirl Financial

Ever heard the term “strategic investing”? How about “tactical investing”? At a glance, you might assume that both these phrases describe a similar investment approach. 

While each approach involves the periodic adjustment of a portfolio and holding portfolio assets in varied investment classes, they differ in one key respect. Strategic investing is fundamentally passive; tactical investing is fundamentally active. An old saying expresses the opinion that strategic investing is about time in the market, while tactical investing is about timing the market. There is some truth to that.1

Keep in mind that asset allocation is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.

Also, investing involves risk, and the return and principal value of investments will fluctuate as market conditions change. Investment opportunities should take into consideration your goals, time horizon, and risk tolerance. When sold, investments may be worth more or less than their original cost. Past performance does not guarantee future results.

Strategic investing focuses on an investor’s long-range goals. This philosophy is sometimes characterized as “set it and forget it,” but that is inaccurate. The idea is to maintain the way the invested assets are held over time, so that through the years, they are assigned to investment classes in approximately the percentages established when the portfolio is created.1

Picture a hypothetical investor. Assume that she starts investing and saving for retirement, with 60% of her invested assets held in equities and 40% in fixed-income vehicles. Now, assume that soon after she starts investing, a long bull market begins, and the value of the equity investments within her portfolio increases. Years pass, and she checks up on the portfolio, only to learn that much more than 60% of the value of her portfolio is now held in equities.

As she is investing strategically, this is undesirable. Rebalancing is in order. By the tenets of strategic investing, the assets in the portfolio need to be shifted, in order to be held in that 60/40 mix again. If the assets are not rebalanced, her portfolio could expose her to more risk than she wants – and the older she gets, the less risk she may want to assume.1

Keep in mind that this article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to work with a professional who can review any tax implications from portfolio rebalancing.

Tactical investing responds to market conditions. It looks at the present and the near future. A tactical investor attempts to shift the composition of a portfolio to manage risk exposure or to take advantage of new opportunities. This requires something of an educated forecast – two forecasts, actually. The challenge is to appropriately decide when to adjust the portfolio in light of change and when to readjust it back to the target investment mix. This is, necessarily, a hands-on style of investing.1 

Is it better to buy and hold, or simply, to respond? This question has no easy answer, but it points out the divergence between strategic and tactical investing. A strategic investor may be inclined to “buy and hold” and ride out episodes of Wall Street turbulence. On the other hand, the tactical investor risks buying high and selling low.

Investors have long debated which strategy is better. One approach may be better suited than another at a particular point in time. And often, it’s not an all-or-nothing proposition. Both approaches may play a role in your overall strategy.

Kim Gaxiola, CFP®  may be reached at 800.584.3652 or at kim@techgirlfinancial.com


This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment advisory services offered through Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. TechGirl Financial™ and Cambridge Investment Research, Inc., are not affiliated companies.
Citations.
1. Investopedia.com, August 15, 2019

financial markets, financial strategy, investing

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Lean In To Retirement

Check out TechGirl Financial's Article Series on how to "Lean In To Retirement".

About the Founder

Kim will put you at ease with your financial planning and help you to create a clear picture of your financial future!

Check the background of this investment professional on FINRA's BrokerCheck

Contact Us

Northern California
111 N. Market Street, Suite 300
San Jose, CA 95113
Toll-Free:  800-584-3652
Contact Us

Stay Informed

Get the latest financial news & more!

Disclosure

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisors Services through Cambridge Investment Research Advisors, a Registered Investment Advisor.

Tech Girl Financial is not affiliated with Cambridge. Check the background of this investment professional on FINRA's BrokerCheck.
This communication is strictly intended for individuals residing in the states of AZ, CA, CO, FL, ID, IL, IN, KY, MI, MT, NC, NH, NJ, NV, OR, SC, SD, VA, WI. No offers may be made or accepted from any resident outside the specific states referenced.

© 2020 Tech Girl Financial, All Rights Reserved

Close

Sign Up for Free Updates!

Receive free updates directly to your inbox.

%d bloggers like this: