Active vs. Passive Management

Hi, we’re going to talk here about active versus passive management styles. You know two distinctly different things that you may have heard about or wondering if they are appropriate for you. First I want to talk about passive. Think of that word in nature, passive means basically no change. So if you have a passive management style, typically your portfolio would be designed to mimic and index or have a set type of investment tools in place that are not changing or balancing quarterly or something like that. So typically you’ll see less transactions and you’re going to track whatever portfolio was designed to do or benchmarked to do. So minimal changes and usually set it and forget it, if you will sort of thing. Active management is going to be a little bit different. In the term it’s active. Usually you have a Manager or a team of professionals that are set to manage your portfolio. Now it may have different objectives in place. One objective could be let’s say beat the market. So they’re trying to make investment decisions based on financial indicators and markets to try to attempt beat some market indices or S&P 500. There’s other objectives that could be out there as well. Maybe it’s to have capital preservation or produce income or whatever that objective is. It’s being actively managed to try to meet that objective in the nature it has. So let’s say you have an actively managed portfolio that’s trying to produce income. Well maybe some time ago it was holding quite a bit of bonds because maybe they had a good interest rate and it was producing a decent interest with that. And so you would have held that. Well time has gone and maybe interest rates have dropped, maybe they need to be making adjustments selling those and moving on. Remember active Managers are deciding when to buy, sell and hold the asset to meet that specific goal. So what may be appropriate for you depends a lot on what you’re trying to accomplish. You hear us talk a lot about on the show what is the purpose of your money? What are the goals of what you’re trying to do? You know some folks maybe they’re younger or maybe that they’re willing to take on more risk or they have a big time horizon on their hands, maybe passive is appropriate for them. Maybe you’re somebody that’s less risk adverse or you have specific goals or timelines with your money, maybe active. Maybe it’s a combination. It really depends on your individual circumstances of your situation. So folks if you’re sitting out there are wondering what you have or maybe what you should have, give us a call. We’d love to sit down with you, give you a free, no obligation look at what you have so we can walk through all the different options for you available to make sure you can plan to retire well.