If you have read enough portfolio publications and books, you may have came across this term called “tactical asset allocation”. According to Investopedia, tactical asset allocation is “an active management portfolio strategy that shifts the percentage of assets held in various categories to take advantage of market pricing anomalies or strong market sectors”.1 In other words, your portfolio’s asset class allocation will change according to the prevailing environmental factors and economic conditions.

Taking the balanced Bedokian Portfolio for example (35% equities, 35% REITs, 20% bonds, 5% commodities and 5% cash), if the market is pointing to a boom period where equities and REITs are likely to gain, and in order to capture their rise, you would adjust your portfolio to 40% equities and 40% REITs, while reducing the bond component from 20% to 10%. Then with recession looming, you would increase your bond holdings to 30%, and reduce …