Contributed by: Austin Manning, CFP®
In periods of market uncertainty or exuberance, investors often find themselves tempted to adjust their portfolios in reaction to short-term movements. It’s a natural impulse—markets are dynamic, news cycles are constant, and the pace of change can be dizzying. But this raises an important question for any serious investor: what is the right way to position a portfolio for lasting success?
At Granite Harbor Advisors, we believe the answer lies in understanding the distinct purposes and benefits of strategic allocation and tactical allocation and knowing when—and whether—to use each. The differences between the two are not simply academic. They influence decision-making frameworks, time horizons, risk tolerance, and ultimately, client outcomes. For affluent families, business owners, and executives seeking sustained, tax-efficient growth, this distinction matters deeply.
Strategic Allocation: A Long-Term Compass
Strategic allocation is the bedrock of a durable investment plan. At its core, it involves setting long-term targets for how capital is allocated across major asset classes—public equities, fixed income, private investments, real assets, and more—based on a client’s unique goals, time horizon, and risk profile.
Think of strategic allocation as the architectural blueprint for a financial plan. It reflects the investor’s financial needs and life goals—not market conditions at any given moment. For example, an executive approaching retirement with a concentrated equity position may require a different strategic allocation than a business owner looking to preserve wealth across generations.
Strategic allocation is inherently designed to weather both good and bad markets. Rather than attempting to avoid short-term losses or chase short-term gains, it assumes market cycles are inevitable and plans accordingly. Studies over decades1 have shown that the overwhelming majority of portfolio returns—some estimates suggest over 90 percent—are driven not by market timing or security selection, but by the overall asset allocation framework.[TS1]
This reinforces our core belief: purposeful investing aligned with a thoughtful strategic allocation is far more reliable than reactive decision-making.
Tactical Allocation: A Supplement, Not a Strategy
Tactical allocation, by contrast, involves short-term shifts in portfolio exposures to take advantage of perceived opportunities or avoid anticipated risks. It can include increasing exposure to a sector, reducing equity weight due to valuation concerns, or incorporating alternatives in response to market dislocations.
There is nothing inherently wrong with tactical allocation. In fact, when used judiciously and within clearly defined parameters, it can add value at the margins. But the keyword here is discipline. While tactical shifts can offer valuable responsiveness in dynamic environments, their true effectiveness lies in complementing—rather than replacing—a well-defined strategic plan.
Unfortunately, too many investors fall into the trap of allowing tactical allocation to become their default approach. They respond to headlines, economic data releases, or the latest forecasts by adjusting portfolios in ways that may feel prudent but are often emotionally driven. This behavior tends to result in buying high and selling low, eroding returns over time.
At Granite Harbor, we sometimes deploy tactical allocation within our asset management process, particularly in areas where we see asymmetric risk-reward or where private market dynamics present unique opportunities. But we do so deliberately, within the context of the client’s long-term goals, and always with a focus on tax efficiency, liquidity needs, and downside protection.
The Costs of Chasing Performance
One of the most damaging investor behaviors we encounter is the impulse to chase past performance. A fund, strategy, or asset class that has outperformed in recent months is suddenly viewed as a “must-own”. This leads to reactive tactical shifts that are not rooted in financial planning, but rather in performance envy or fear of missing out.
It’s worth remembering that yesterday’s outperformer is rarely tomorrow’s. Markets are inherently cyclical, and leadership rotates. Overconcentration in what has recently performed well often leaves portfolios overexposed to sectors that are nearing their peak.
Strategic allocation, by design, counteracts this tendency. Through regular rebalancing, it compels investors to trim exposure to outperforming assets and add to historically underperforming ones—effectively buying low and selling high. In this way, it harnesses behavioral finance principles in a constructive way.
Aligning Investment Decisions with Purpose
This raises a broader philosophical point: investment decisions should be made in service of purpose, not performance alone. Whether that purpose is financial independence, intergenerational wealth transfer, or philanthropic legacy, the portfolio is a tool—not the goal.
Granite Harbor’s approach begins with understanding that purpose in depth. From there, we construct a strategic allocation tailored to the client’s risk capacity, time horizon, and liquidity needs. Tactical considerations are secondary and only arise when they serve to enhance, not distract from, that core objective.
Additionally, our clients benefit from access to both public and private market opportunities, enabling broader diversification and exposure to less correlated assets. For instance, integrating private credit or private equity into a strategic allocation may offer meaningful risk-adjusted return benefits that are not available through traditional public markets alone. These are not short-term trades; they are long-term allocations made with intention.
When Tactical Allocation Can Be Helpful
While we are cautious about tactical allocation, we are not dismissive of its potential. There are scenarios in which modest, carefully timed adjustments can make sense:
- In anticipation of liquidity events, such as a business sale or inheritance, where short-term market risk may need to be reduced.
- During periods of significant dislocation, such as the early stages of the COVID-19 pandemic, when risk assets are mispriced and temporary allocation shifts allow for enhanced recovery.
- To address tax-loss harvesting opportunities, which can create long-term benefits when implemented within a disciplined framework.
The key is that tactical allocation in these cases is not speculative -- it is purposeful, constrained, and driven by the broader financial plan.
Staying Grounded in Volatile Times
We live in a world of constant noise. Financial media headlines, macroeconomic predictions, and geopolitical events can all create a sense of urgency. But the most successful investors are those who resist the temptation to be reactive. They stay grounded in their purpose, disciplined in their planning, and patient in their execution.
At Granite Harbor Advisors, we serve as guides through this noise. Our team-based model ensures that clients have access to a full bench of expertise, not just a single advisor. We coordinate financial planning, investment management, insurance strategy, and estate planning to ensure alignment and integration. This holistic approach gives clients the confidence to stay the course—even when markets are turbulent.
Conclusion: Strategy First, Tactics Second
Positioning a portfolio for long-term success is not about predicting the next market move. It is about constructing a strategy that reflects the investor’s values, needs, and aspirations—and then sticking to it with discipline and care.
Strategic allocation forms the foundation of that approach. Tactical allocation can play a role, but only when used with discretion, humility, and within the guardrails of a well-crafted plan.
As always, we are here to help clients and their families navigate these decisions thoughtfully and confidently. With the right structure in place, and the right partner by your side, long-term success can become not just possible—but probable.
Sources:
- CFA Institute - https://blogs.cfainstitute.org/investor/2012/02/16/setting-the-record-straight-on-asset-allocation/?utm_source=chatgpt.com