Since no investment performs well all the time, asset allocation assumes that when one asset class is down, something else will be up. While it is proven that this approach does reduce risk, without any rebalancing this approach does not take advantage of market fluctuations and leaves significant potential for a higher return on the table.

Dynamic Asset Allocation: Similar to regular asset allocation, dynamic asset allocation seeks to reduce risk by investing in various asset classes, however the weighting of each position is based on the potential for superior returns given the current market conditions. Dynamic, because positions of each asset class change in response to market conditions or the ability to profit. A money manager’s performance can be attributed to asset allocation 80 to 90% of the time, not stock selection or market timing. Since markets move in cycles it pays to have many different asset classes in a portfolio. When one asset class moves up, a trigger to rebalance or sell some of the rising asset to buy the current out of favour asset class is made. As well as rebalancing, positions in each holding may be increased or decreased depending on market conditions and other external influences. Dynamic asset allocation works because you don’t have to be right all the time. The goal is to reduce risk by a greater amount than return is sacrificed.

The main function of dynamic asset allocation is to reduce risk or fluctuation in a portfolio and deliver higher returns at the same time. This strategy works well with mutual funds by instantly providing investors immediate exposure to hundreds of different securities, and rebalancing can be achieved and triggered daily if needed, at no cost to the client. This is the strategy used by portfolio4less.com.