Chapter 6: Dynamic Asset Allocation

This chapter analyzes how to change the optimal asset allocation of clients as determined in Chapter 4 in the course of investment when financial markets go up and down. There are three prominent views on this question:

1. buy-and-hold, i.e. do nothing and let the portfolio run with the market
2. rebalance, i.e. undo the market fluctuations and make sure that you always hold a portfolio in those proportions that you have decided to be optimal for you
3. market timing, i.e. recalibrate your portfolio whenever new information arrives or when you get closer to or further away from your target

The question of which of these three approaches is the best belongs to an old debate. The ideas developed in this chapter will help you to find your own standpoint on it.

The chapter is structured as follows.

6.1. The optimal tactical asset allocation
6.2. The optimal strategic asset allocation