Strategic Allocation
The long-run target asset-class weights set in the investment policy statement to meet the investor's objectives and constraints.
Item-writers love to make you sort four moves apart: strategic (policy) sets the long-run targets, tactical is a deliberate short-run tilt away from them, rebalancing trades back TO them, and security selection picks names within a class. The classic stem describes an action — “the manager overweights equities expecting a rally” — and asks which it is; the tell is intent and horizon. Acting on a view about mispricing is tactical; restoring weights after drift is rebalancing, not a view. A frequent trap: calling a corridor-triggered rebalance (a percentage-of-portfolio threshold breach) a “tactical shift.”
The policy portfolio is built from the IPS — its risk and return objectives plus the five constraints (liquidity, time horizon, tax, legal/regulatory, unique). Don’t conflate willingness and ability: strategic weights flow from risk tolerance, and when the two diverge the prudent conclusion anchors to the lower of them — the adviser educates on the conflict rather than simply overriding it.
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