Asset Allocation In Bull Markets: Experts Recommend 'Annual Rebalancing'— What Is It?
Asset Allocation In Bull Markets: The core advice revolves around maintaining discipline, aligning moves and calls to the long-term goals, and only making targeted, short-term adjustments
Following recent market movements where multiple asset classes may be rallying, financial planners emphasise that investors must distinguish between investing strategy. There is static or fixed and tactical or opportunistic asset allocation that investors can adopt.
The core advice revolves around maintaining discipline, aligning moves and calls to the long-term goals, and only making targeted, short-term adjustments to capture immediate market opportunities.
Mohit Gang, co-founder of MoneyFront, defines the foundational difference between the two approaches. Static asset allocation involves maintaining a fixed ratio, such as 50% in equity and 20% in fixed income at all times. He explains that in this model, if an asset’s value rises or falls, investors "will rebalance" to restore the original percentage breakdown.
The decision between static and dynamic asset allocation ultimately depends on how an investor wants to maintain their portfolio and their risk tolerance. Gang suggests that if an asset price "runs up, would investors want to trim down or balance it with liquidity?"
He advises investors to conduct a portfolio “look-around” every six months, with a full rebalance recommended “every year.”
Nikhil Kothari, from Etica Wealth Investors, focuses on the long-term strategic view. He asserts that for the long term, “70-80% should go to equities.”
The other key component is tactical asset allocation, which is a deviation from the static plan based on a short-term conviction. This is where an investor "take a call that some asset classes requires more exposure changes such as investing into IT now."
Kothari notes that the need to manage sectors like "banking and more need to be managed according to your overall goals.” Crucially, he frames these minor adjustments as tactical calls. To increase asset allocation by one or two percent need to be tactical calls, he explains.
Essentially, investors should keep their primary allocation fixed, but use small, tactical shifts to capitalise on short-term market opportunities without derailing their overall financial plan.
