In the process of forming an investment portfolio, there are two main strategies: SAA (Strategic Asset Allocation) and TAA (Tactical Asset Allocation). As the names suggest, these strategies focus on the allocation of asset classes, which are generally divided into three categories: Cash (Money Market), Bonds (Debt Securities), and Stocks. Understanding the differences between the two is crucial to maintain an investor’s portfolio so it remains “healthy” and grows optimally.

Let’s compare an investment portfolio to a healthy meal consisting of three main nutritional components: carbohydrates, protein, and fiber.

Understanding the Nutritional Components of Assets

1. Cash = Carbohydrates (Daily Energy)

Carbohydrates are a readily available source of energy. Similarly, cash is liquid, making it easy to use for short-term and urgent needs.

The higher the level of physical activity, the greater the body’s need for carbohydrates. In the same way, the higher the short-term financial needs, the larger the portion of cash that should be held in a portfolio.

However, if an investment portfolio is allocated only to cash, its growth will not be optimal. This is because returns from cash instruments are generally only slightly higher than inflation.

2. Bonds = Fiber (Balance/Health)

Just as fiber helps maintain digestive stability, Bonds (Debt Securities) help prevent extreme volatility in an investment portfolio. Bond coupons or yields are paid periodically, enabling bonds to stabilize a portfolio when the stock market fluctuates. Bonds tend to be defensive assets. While the returns they provide are generally lower than those of stocks, they offer a more stable and regular cash flow.

3. Stocks = Protein (Muscle/Growth)

Protein is the primary building block for muscle and growth. Likewise, stocks are one of the key instruments used to build long-term wealth through capital gains. Without protein, muscles will shrink; similarly, without growth assets, the value of wealth can be eroded by inflation.

However, excessive protein intake that is not properly utilized can burden the kidneys and increase fat levels. In the same way, allocating too much to stocks in a portfolio, without balancing them with other instruments, makes the portfolio highly volatile and increases risk. When the stock market declines, the impact on the portfolio can be significant.

Stocks are long-term investments. Just as muscle does not form immediately after eating a plate of chicken breast in a single day, an investment portfolio is not guaranteed to grow significantly after holding stocks for only a short period of time.

SAA (Strategic Asset Allocation): Long-Term Balanced Nutrition Guidelines

SAA focuses on long-term investing. It can be likened to a Daily Nutrition Guide that supports your body’s needs over the next 5–10 years. Investors determine the ideal composition of carbohydrates, protein, and fiber at the outset based on their risk profile and long-term financial goals, then maintain this allocation consistently over time.

Example of Application
Supposedly an aggressive investor focused on asset growth sets a daily “menu” as follows:

• 60% Stocks (Protein)
• 30% Bonds (Fiber)
• 10% Cash (Carbohydrates)
  

If the stock market rises sharply and the stock allocation increases significantly to 80%, the investor should rebalance the portfolio by shifting part of the stock portion into bonds or cash. This brings the allocation back to the original plan of 60/30/10. The objective is to maintain the long-term health and stability of the portfolio.

TAA (Tactical Asset Allocation): Seasonal Menu Adjustments

If SAA is a long-term nutritional guideline, then TAA is a short-term strategy designed to respond to short-term needs. TAA can be likened to adjusting your diet when you want to cut weight or bulk up by increasing calorie intake. In a portfolio context, investors make small and temporary deviations from their SAA to take advantage of market opportunities or to avoid short-term risks.

Example of Application

An aggressive investor seeking asset growth observes multiple signals that the economy may weaken significantly and that corporate profits could decline. In response, the investor may make the following adjustments:

• 60% Stocks (Protein) → 40%
• 30% Bonds (Fiber) → 40%
• 10% Cash (Carbohydrates) → 20%

This new portfolio composition under TAA can be maintained for a certain period, for example 3–12 months, depending on ongoing analysis of the outlook for the three asset classes.

General Guidelines for Investing

For investors who are just starting their investment journey, it is best to establish an SAA first. Just as with nutrition, building a habit with balanced and ideal nutrients (SAA) should come before trying more complex seasonal diet programs (TAA).

Make sure your portfolio has the right composition of Cash (carbohydrates), Bonds (fiber), and Stocks (protein) to support long-term asset growth. Once this balance is consistently maintained, you can begin exploring more advanced investment tactics.

When compiling a portfolio, novice investors can also use Investment Goals in the Investment feature on myBCA app. Through Investment Goals, investors receive guidance on the allocation of investment product types that need to be purchased to achieve their investment goals. This guidance takes into account various factors, such as investment objectives, the target amount of funds, and the time frame for achieving those goals. Investors can choose to purchase products based on this guidance or follow their own investment strategies.

Every month, BCA publishes BCA House View, a comprehensive publication that discusses economic developments and BCA’s perspectives on three major asset classes: Cash or Money Market, Bonds or Debt Securities, and Stocks. This publication can be accessed by clicking the button below.

Wishing you success in building your future portfolio!