Strategic Asset Allocation
Strategic asset allocation (SAA) sets long-term target allocations to asset classes based on investor goals, risk tolerance, and time horizon — the policy portfolio.
Concept map
Learn, apply, review
Definition
Strategic asset allocation (SAA) sets long-term target allocations to asset classes based on investor goals, risk tolerance, and time horizon — the policy portfolio.
Use case
Used in portfolio management workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about Strategic Asset Allocation
SAA is the bedrock of portfolio construction, often determined using mean-variance optimization or liability-driven approaches. It remains stable through market cycles, while tactical allocation permits short-term deviations. Rebalancing maintains SAA discipline. SAA explains most portfolio return variation over time.
Example: Endowment's SAA: 35% US equities, 20% international equities, 25% fixed income, 10% real estate, 5% commodities, 5% cash. This policy targets 6% real return with 12% volatility over 20+ year horizon. Quarterly rebalancing maintains these targets.