Once you have established your portfolio, you face another challenge. How actively should you manage the portfolio and the asset allocation? This varies between the tactical and strategic asset allocations. Clearly, the tactical asset allocation decisions will be rebalanced, when you feel you have exploited the short-term inefficiencies in pricing. You may want to phase in the selling of asset classes in these circumstances, as the mis-pricing is unlikely to end suddenly. Strategic asset allocation can be rebalanced on a less frequent basis. This may be on a six-monthly or yearly basis, or when the allocation moves a certain percentage away from the original weightings, such as by five percent. It is important to rebalance the portfolio, to comply with your strategic asset allocation, because this is designed to meet your long-term objectives.
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