Strategic Asset Allocation: What Is It and How Does It Work?

Key Takeaways: 

  • Strategic asset allocation enables an investor to set allotments for various investment classes. 
  • Target allocations depend on time horizon, risk tolerance, and investment objectives. 
  • Rebalancing your portfolio is necessary when the original allocations deviate from the original settings. 

Ultra-high net worth individuals may need a consolidated and global view of their wealth structure with return indicators and a qualitative diagnosis. Many tools could be used to this effect, but none is more operative than strategic asset allocation (SAA). 

An SAA is an investment approach that enables you to align the makeup of your portfolio based on your risk tolerance. In other words, the model helps you understand your investment profile and defines an optimal asset allocation depending on your goals and risk constraints. The goal is to help you optimize the risk-return profile of your investment. 

A well-planned SAA model can make deciding how much of your money you should invest in broad investment categories like stocks and bonds much simpler. It also helps you plan for smaller sub-categories such as U.S. small-cap and mid-cap stocks. 

One key difference between SAA and other portfolio drivers is that it’s set in advance. The investment team determines factors like tactical decisions, factor exposures, and fund selection throughout your investment time horizon. 

Factors Affecting Strategic Asset Allocation 

Your investment portfolio distribution depends on three crucial factors when you’re making important investment decisions:

Return Objective 

Your return objectives or goal factors are the financial targets you want to reach with your SAA. You may require a more aggressive investment allocation if your goal is to achieve capital growth. A fixed income returns objective calls for a more conservative approach in your asset allocation strategy. 

Time Horizon 

Consider how long you intend to hold on to your investments. You can afford to be more aggressive in your investment approach if you don’t need the money for a long time. If you project a longer time horizon for your investment, you generally shouldn’t be upset by the volatility that comes with an aggressive allocation. That means the longer you stay invested, the greater risk you’re taking. Short time horizons allow you to take little risk or no risk at all. 

Your Risk Tolerance 

Having too much risk in your portfolio may seem like a massive mistake. Taking on too little risk, or no risk at all, though, can reduce or adversely affect your ability to achieve your financial goals – especially when considering the effects of inflation. Check that your portfolio has an appropriate level of diversification across and within each asset class to help you remain invested for the longer term. 

It is imperative to consider your objectives, your willingness to take risks, and your timeline when considering strategic asset allocation. The following section will help you understand more about how it works.

How Strategic Asset Allocation Works 

One outstanding feature of SAA is that once you decide upon an allocation, you stick with it for many years. The main selling point of this investment strategy is to help you work steadily toward a financial goal over a long period. Doing so prevents you from making short-term decisions based on current market events. 

The approach borrows its foundation from the modern portfolio theory, which holds that markets are efficient and follow specific patterns that are more reliable than human investors. Instead of speculating on financial trends, the approach enables you to take advantage of the built-in efficiency of the market through a fixed set of assets and a balanced portfolio. 

Strategic asset allocation is ideal for aggressive investors with greater risk tolerance. It allows them to put their money in more stock if they aim to maximize long-term growth. An SAA recommendation, for example, might suggest investing 70% in stocks, 20% in bonds, and 10% in cash. A more modest approach would recommend 60% stocks and 40% bonds. 

Maintaining Your Asset Allocation 

Settling on a strategic asset allocation investment strategy means you must then maintain it. This also means you must regularly check the portfolio to ensure it is well-aligned. You may need to rebalance it on a pre-set schedule so that, in the event it becomes misaligned, you can restore it to the original allocation. 

Consider this strategic asset allocation example: Assume you started with an investment portfolio of 60% stocks and 40% bonds. After a year, you find the portfolio is 70% stocks and 30% bonds. Under the SAA strategy, you would have to sell the excess 10% in stocks to bring the target back to 60%, even if the stocks are currently performing well.

The aim is to reinvest the proceeds into bonds to balance the portfolio. The overall goal of SAA is to enable you to stay with your original plan, ideally preventing you from occasionally shifting your goal posts based on market dynamics. 

If you obtain information that may call for changes in the allocation, though, it’s OK to make and stick with those changes. This information should be something that alters your willingness and comfort in taking more or less risk and should not simply be a shift based on the assets’ performance or on the market itself. 

Determining Whether You Need Strategic Asset Allocation 

SAA is an ideal investment strategy for the typical buy-and-hold investor, rather than tactical asset allocation, which is more suited to active trading. SAA is a perfect strategy for saving for long-term goals like retirement planning

To get a strategic asset allocation, determine how much you want your allotment to be and break down each asset class. For example, you can break down stocks into large or small caps, U.S. international, or emerging markets. You then need to develop a plan and purchase the funds. 

Engaging the services of asset allocation professionals can ease the burden, making it easier to arrive at the most suitable decision for your portfolio. Contact Bogart Wealth to speak with an expert about strategic asset allocation and any other investment concerns you may have. 


Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.comPlease Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bogart Wealth client, please contact Bogart Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

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