What is Tactical Allocation?

More  financial advisors are asking their clients to make an extra `tactical allocation' to equity. They argue that like such an allocation made to debt a year ago, this strategy would also reward investors handsomely.

Many individuals had increased their allocation to debt a year ago due to the bleak economic outlook.

Time the market

However, the outlook for the Indian economy has changed dramatically in the past two weeks.  Advisors believe investors should cash in on the improved sentiment and pocket the `spectacular returns' that the market is likely to deliver in the next few years.

However, critics point out that this strategy is nothing, but another ploy to time the market.

“These people are not into financial planning. They are behaving like hot money managers or /  hedge fund managers who allocate money depending on the performance of the market,“ says Kartik Jhaveri, director, Transcend Consulting, a wealth management firm.

“They are not following any principles and their basic argument itself is wrong.

How can they claim that their tactical allocation to debt paid off well, when the equity mutual funds have gone up 30% to 40% last year? Those who have stuck to their allocation to equity would be sitting back and getting ready to enjoy the rest of the ride in the market,“ adds Jhaveri.

What about Basic Allocation..?

Mr. Suresh Sadagopan, Principal financial planner, Ladder7 Financial Advisories, said, ''The strategy of tactical allocation does not work for most individuals as they are grossly underinvested in equity currently . Many individuals have pulled out money from their equity investments in the last few years. They should be trying to get back to their original allocation plan in the next 6 months, rather than getting carried away by such talks,“ he says.

He also dismisses the practicality of tactical allocation to equity at this juncture.

Jhaveri says those who are going to make such an allocation have already missed a good part of the rally. “Some the funds, especially the midcap funds, have already delivered 50 % returns. So, when you are getting into the market at this point of time, some of your gains are capped to a certain extent.“

Nobody can predict the market..

“Nobody can predict the market. You may get right once or twice, but you can also go wrong the rest of the time. That is why we ask our clients to invest in the market only for their long-term financial goals,“ says a wealth manager.

“We also tell them that they should not bother about a huge fall or /  a rally because such events would happen a few times when you are in the market for 7 or 10 years.“

Think Long-term

 Jhaveri also believes that investment principles always hold supreme, irrespective of the market conditions.

“If a long-term goal like retirement or child's education warrants equity investment, you must invest in stocks irrespective of the prevailing market conditions,“ he says.

The moral of the story: If you have a plan, try to stick to it.

Src: ET

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