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Getting Started on Investment

Investment Strategies

Passive vs. Active investment management

WHAT IS PASSIVE INVESTMENT MANAGEMENT?   Passive management or passive investing is an investing strategy that tracks a market-weighted index or portfolio.  The idea is to minimize investing fees and to avoid the adverse consequences of failing to correctly anticipate the future. The most popular method is to mimic the performance of an externally specified index.  Investors typically do this by buying one or more index funds.  By tracking an index, an investment portfolio typically gets good diversification, low turnover which reduces the internal transaction costs, and have low management fees.  With low fees, an investor in such a fund would have higher returns than a similar fund with similar investments but higher management fees and/or turnover/transaction fees.

How does Assets Allocation work with Passive investment management?

Once you have assessed your risk tolerance an appropriate asset allocation mix is chosen.  From then on, you buy and hold the investments only to reallocate the balances from time to time on a quarterly basis as to maintain the integrity of the portfolio allocation.  From time to time a mutual fund for instance may be replaced by a better performing mutual fund, but you buy and hold for the long term.

How does that work if I am risk adverse?

A risk adverse investor in a way fits under this style as well.  A risk adverse investor will buy the Certificate of Deposit, fixed annuity or Treasury bond and hold it or them until maturity and reinvest in to most likely the same security or insurance contract.

Well if there is passive investment management, there must be active investment management.  How would that work?

Active investment management is the opposite.  It is a portfolio management strategy where specific investments with the goal of outperforming an investment benchmark index. It is also a strategy that liquidates or sells a portion or all of the portfolio to stay out of the market when the market is trending down.  It is used to protect the portfolio by avoiding major market corrections.  And alternatively buys into the market as the market trends up.  Take a moment to view some of our videos to better understand our process.

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