There is a lot of talk about which investment strategy is better in achieving your goals. We believe in active management, and have supporting studies to show it will outperform passive investing over the long run. Why is this? It is based on two major premises:
- The first is the active manager can’t be closeting the index, meaning their stock selection is merely following along with the index, as active managers will have higher fees than their passive counterparts, (well not always), fees have to reasonable – fees that are too high will rob the investor of performance gain.
- Secondly, to be invested with a passive strategy and to be effective is that one needs to use the lowest cost account vehicle as by definition one is always going to under-perform the index, since passive management is merely a stock portfolio that tracks an index less a fee. This means that one either uses a self directed account with a small trading fee or a robo advisor which will pick an index for you, however most investors are emotional and will generally do the wrong thing at the wrong time, (buy high and sell low), an advisor’s hardest work is during these times; if the investor stays with a properly structured program they will achieve their goals in the long run.
This is not to say passive investments don’t have their place, a portfolio manager will use them where warranted i.e.: foreign income strategy, or a particular market index strategy but the investment choice will fit with the investors overall asset mix and risk tolerance.
Here is a great article for you on the topic.