Why might an investor choose to engage in tactical asset allocation?

An investor might choose to engage in tactical asset allocation primarily to align their asset distribution with changing market conditions. This approach allows an investor to take advantage of short-term market fluctuations and forecast trends by adjusting the proportion of different asset classes in their portfolio.

By actively reallocating assets in response to the current economic climate or market trends, an investor aims to enhance returns and manage risk more effectively than with a static investment strategy. This flexibility can be especially beneficial in volatile markets, where rapid shifts in performance between asset classes can create opportunities for generating additional returns.

Maintaining a dynamic strategy that reacts to the environment allows for a more calculated approach to investment, contrasting with methods that maintain a fixed allocation or only focus on historical data. This adaptability is a central advantage of tactical asset allocation.