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By Christine Benz | 09-29-2010 05:21 PM

Zweig: Tactical Asset Allocation Has a Lot to Prove

It very much remains to be proven whether tactical asset allocation is or even can be more effective, not just for individual investors, but for professionals, says the Wall Street Journal columnist.

Christine Benz: Hi. I'm Christine Benz for Morningstar.com. I'm here today in the Wall Street Journal's office and I'm joined today by Jason Zweig. Jason is a personal finance columnist for the Journal, and he's also author of several books about money and investing.

Jason, thanks so much for being here with us today.

Jason Zweig: Glad to have you, Christine.

Benz: So Jason, I'd like to talk about tactical asset allocation, which seems like it's gaining evermore traction in the marketplace. Investors are really interested in this idea of being able to jump in and out of various asset classes. I'd liked your take on that strategy versus one that is more long-term and strategic and hands off.

Zweig: Yes. It's really a difficult question, Christine. The frustration of both individual investors and professional investors after the past 10 years of agony, I guess, we should call it, is really, really high. And it's completely understandable; people have thrown their hands up. They say, buy and hold doesn't work. The whole "stocks for the long run" thing isn't working for me anymore.

So I'm going to do something different, and I'm going to take control. The problem is while you may have taken control of the actions in your portfolio or you may have taken control of your portfolio, you can't take control of the markets. And you may have an intuition that right now is a really good time to be trading foreign currencies, and you run out and buy Swiss francs or sell Japanese yen or vice versa or Norwegian kroner or whatever floats your currency boat, thinking that I failed over here, so I'm going to succeed over here.

But it's very important for people to realize that there just aren't any free lunches anywhere, and just as strategic long-term asset allocation isn't going to work all the time, there's no particular reason why tactical asset allocation would have a higher success rate.

In fact, common sense would tell you that if you didn't do so well when you were making a small number of decisions, going to a system in which you're going to make a large number of decisions and expecting that you'll be right more often probably isn't the best way to think about it.

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