Q: What is Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA)?

A:
Asset allocation refers to the percentage value allocated to each asset in a portfolio of assets. Assets include shares, property, bonds and cash, to name a few. 
 
Strategic asset allocation (sometimes referred to as SAA) is a type of asset allocation model used to achieve the investor’s long-term investment goals. This is achieved by allocating different percentages of the investment into different asset classes within the portfolio. Asset classes include cash, bonds, shares etc.
 
For example, a high growth fund typically has a large strategic asset allocation to shares, maybe 85%, because they are a higher risk and thus higher returning asset class over the long term. On the other hand, the same fund would typically have a low strategic asset allocation to cash and bonds because of their lower risk and return characteristics.
 
The investor or fund’s risk tolerance, time horizon, and investment objectives inform the strategic asset allocation decision. The strategic asset allocation is then a plan representing the investor or fund’s best chance of reaching their goals, with a risk profile they feel comfortable with. 
 
The asset classes Nucleus Wealth invests in are cash & term deposits, bonds, Australian shares, and international Shares.  Below is an illustration of the Nucleus Wealth Tactical Growth investment’s strategic asset allocation.

Nucleus Wealth Tactical Growth – Strategic Asset Allocation

 

The Limited Advice option in the Nucleus Wealth client portal is designed to assist you in determining your strategic asset allocation. The portal will ask you a number of questions to understand your risk and income requirements. It then uses this to recommend an appropriate strategic asset allocation for your Nucleus Wealth investment. It is important to note the system only considers your investment at Nucleus Wealth, and thus you may want to submit your application and take the documents (which will be emailed to you) to discuss with your external adviser or accountant, who may understand your full personal situation. If you’re unsure, give us a call on 1300 623 863, or email us at contact@nucleuswealth.com.

While the strategic asset allocation is the long-term asset allocation based on the fund or investor’s objectives, the Tactical Asset Allocation (sometimes referred to as TAA) is a short-term deviation from this long-term allocation and is based on external factors, such as to take advantage of market pricing anomalies, strong market sectors or because of short term economic conditions.

Nucleus Wealth’s multi-asset investments all have names that being with ‘Tactical’ because they aim to achieve returns greater than just strategical asset allocation would, by using tactical asset allocation. Almost all multi-asset investments will have a strategic asset allocation, but not all will choose to use tactical asset allocation.