Portfolio Management

A client's requirement for quick access to cash on short notice for emergencies, anticipated expenses, or ongoing living expenses. High liquidity needs require allocating a portion of the portfolio to highly liquid investments (money market funds, short-term Treasuries) rather than illiquid investments (real estate, limited partnerships, annuities with surrender charges). Industry standard recommends maintaining 3-6 months of living expenses in emergency reserves, with higher amounts for retirees or business owners.

Example: A 68-year-old retiree living on portfolio withdrawals has high liquidity needs and should maintain 1...

The annual rate at which a fund or portfolio buys and sells holdings, expressed as a percentage. Calculated as total purchases divided by average portfolio value. High turnover (over 100%) indicates active trading with higher costs and tax consequences, while low turnover (under 25%) indicates a buy-and-hold strategy with lower expenses.

Example: An actively managed growth fund with $100 million in assets purchases $120 million in new securities...

The percentage deviation from target strategic asset allocation that triggers portfolio rebalancing. For example, if strategic allocation is 60% stocks with a 5% threshold, rebalancing occurs when stocks drift to 65% or 55%. This returns the portfolio to its strategic allocation, not a tactical adjustment based on market views.

Example: A client has a 60% stock / 40% bond portfolio with a 5% rebalancing threshold. After a strong market...

The long-term target mix of asset classes (stocks, bonds, cash) in a portfolio based on the client's risk tolerance, time horizon, and financial objectives. This baseline allocation typically remains stable over years and is not adjusted for short-term market conditions or forecasts. Strategic allocation is typically documented in the Investment Policy Statement (IPS) and serves as the portfolio's foundation, with periodic rebalancing to maintain target percentages.

Example: An adviser establishes a strategic allocation of 60% stocks, 30% bonds, and 10% cash for a 45-year-o...

A short-term, active investment strategy that makes temporary deviations from the strategic (baseline) asset allocation to capitalize on market opportunities or avoid market risks. Unlike strategic allocation which sets long-term target percentages, tactical allocation involves making temporary adjustments based on current economic conditions, market valuations, or near-term outlook, with the intention of returning to the strategic allocation once conditions change.

Example: A client has a strategic allocation of 60% stocks / 40% bonds. Based on concerns about an impending ...