Combining Strategies
Strategy Mix
Last updated
Strategy Mix
Last updated
In the realm of asset allocation, the strategy mix holds the key to unlocking optimal results. The primary aim is to strike a balance by blending various low-correlated asset allocation models. This not only serves to mitigate risk but also has the potential to modestly enhance returns.
A well-crafted mix of asset allocation strategies can yield synergistic diversification and momentum advantages. By combining different models, investors can capitalize on the strengths of each, often surpassing the performance of a single strategy while dampening overall volatility.
Central to the strategy mix concept is the core and satellite approach. The core of the portfolio remains anchored in a strategic (static) asset allocation, characterized by a buy-and-hold strategy. Meanwhile, the satellite portion offers flexibility through dynamic asset allocation strategies. This dynamic component allows investors to capitalize on market opportunities and adjust their positions accordingly.
A notable example of the strategy mix in action is the Lethargic Asset Allocation (LAA) strategy. LAA allocates 75% of the portfolio to assets like U.S. Large Cap Value (IWD), Gold (GLD), and U.S. Intermediate Term Treasury Bonds (IEF). The remaining 25% is devoted to a blend of offensive (Nasdaq 100: QQQ) and defensive (U.S. Short-Term Treasuries: SHY) assets, leveraging both relative momentum and strategic positioning.
In the dynamic world of investing, the combining strategies offers a potent tool for optimizing portfolio performance. By carefully blending different asset allocation models, investors can strike the perfect balance between risk mitigation and return enhancement, setting the stage for long-term success.
