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Tactical is a word that gets thrown around in the investment management industry.  That’s not a bad thing.  In fact, we are big advocates of a portion of portfolios being dedicated to a tactical approach…as long as the purpose is defined and it’s carried out in a way that moves the needle in the right direction for investors.

Tactical strategies can come in many shapes and sizes but broadly speaking, tactical movements within a portfolio should be designed to keep risk and reward in line or improved upon.  They are not decisions made on the wave of emotion or in the heat of the moment but rather in the framework of a defined and data driven process.

Buying a strategy because of a strong 3 year track record is not a tactical move – it’s performance chasing.

Selling a strategy because of a bad 1 year (or 1 month for that matter) period is not tactical – it’s performance chasing.

At the heart of the behavior gap lives performance chasing.  Investors’ biggest threat to their long term success is their behavior.  If you’re using a “tactical” approach, make sure it’s designed to minimize this threat.  Clients have plenty of behavioral hurdles to deal with – they don’t need yours too.

Are you truly tactical, or just looking for the next best thing?