Tactical Asset Allocation (TAA) is an active approach to investing that shifts a portfolio's mix of assets in response to changing market conditions. Rather than holding fixed weights forever - say, always 60% stocks and 40% bonds - a TAA strategy adjusts those weights month to month based on rules designed to favor what is working and reduce exposure to what isn't.
The goal is to capture meaningful upside during strong market environments while pulling back before or during serious downturns. Most TAA strategies use some form of momentum (leaning toward assets that have been rising) or trend-following (staying invested when an asset is above a long-term average, stepping aside when it falls below).
How it differs from buy-and-hold
A buy-and-hold investor accepts whatever the market delivers - including the full depth of bear markets. A TAA strategy attempts to earn competitive long-term returns with smaller, shorter drawdowns by rotating out of falling assets and into rising ones. The trade-off is that it won't always be fully invested in the best-performing asset, and it can lag during sharp, fast recoveries.
How it differs from strategic (static) allocation
Strategic allocation sets target weights - such as 40% US stocks, 30% international, 20% bonds, 10% real assets - and rebalances back to those targets periodically. The weights themselves don't change with market conditions. TAA goes a step further: the weights themselves are driven by signals, so the portfolio can look very different from one month to the next.
Monthly rebalancing
Most strategies tracked on DMS | Dual Momentum Systems rebalance once a month, at month-end. Each month the strategy's rules are applied to recent return data and a new target allocation is produced. If the targets changed, trades are made; if not, the portfolio sits unchanged and no trading costs are incurred.
Why TAA strategies vary widely
The universe of assets, the signals used, the lookback period, and the rules for switching between risk-on and risk-off positions all differ across strategies. Some rotate among a small set of broad ETFs; others select from a larger menu. Some go to cash or short-term bonds when conditions look poor; others rotate into defensive assets. These differences produce very different return and risk profiles, which is why comparing them across the same historical periods is useful.