1. Strategic asset allocation
Strategic asset allocation is a more passive approach. It is concerned with reaching the investment goals in the long term. It involves allocating a certain percentage of total capital to various asset classes. The strategy allocates money to stocks, bonds, cash, and alternative investments based on historical returns, risk profiles, and correlations. For example, the 60/40 split gives 60% of the capital to the stock market and 40% to the bond market. Periodically, it rebalances the portfolio to maintain the desired allocation.