Successful asset allocation will cater to the risk tolerance and goals of a client based on past performances while seeking gains in an uncertain future; this calls for a mixture of art and science.
We believe that successful asset allocation is based on rigorous statistics, but as with any other statistics, it’s 20/20 retrospective vision.
Proper diversification can help to make the future performance slightly more predictable, but as market conditions unfold, the appropriate rebalancing or reallocation may not always be obvious, especially to a computer.
Nevertheless, the idea behind asset allocation is the preserve the model for as long as its’ tenable, so it could be said that if you “set it and forget it,” you could take all of the art out of the equation.
To create an asset allocation that will satisfy your goals and risk appetite, and that will optimize performance in the future, is as much of an art as it is a science. Even the best asset allocation tools may not know something about the current market that you or your advisor might.
Therefore, the answer to the above question is that it is both.
How Do I Allocate My Assets in Retirement?
How Often Can I Change the Allocation in My 401(k)?