Friday 13th December 2019
When you’re investing your money through a fund, there are two main strategies: passive and active. The debate around which is the most effective way to invest your money has been raging for years. So, which should you opt for?
As with all investment decisions, it will depend on your goals and personal attitude to investing. However, it’s important to understand the difference between the two options when you’re making investment decisions. Both terms refer to how an investment fund is managed. There are more active funds available to choose from, but passive alternatives have been increasing in the last few years.
Actively managed funds are led by either a professional fund manager or investment research team. They actively make investment decisions on your behalf, such as when to buy into a specific company or sell certain types of assets. Those running the fund will conduct extensive research to inform their decision-making.
Different funds will have varying investment principles and focus, which you should read about before investing in an actively managed fund. However, they all aim to deliver higher returns than the market. Of course, this can’t be guaranteed, and the returns delivered will depend on those running it to make the right call.
Passive management of a fund, on the other hand, simply tracks the market. Rather than a team of people making decisions, a computer essentially runs a passive investment fund. The fund will hold all or a significant portion of assets of a particular market. As a result, the returns delivered should reflect how the overall market has performed.
When deciding between the two options, there are a few key comparisons to make that can help you make the right choice.
There’s no right or wrong answer when asking which is better: passive or active investing? It comes down to your own financial situation, goals and attitude. Much like the rest of the investing decisions you make, it’s one that should consider your wider financial situation too.
For some, the potential to achieve higher returns will mean that the higher fees associated with actively managed funds will be worth it. For others, a passive fund will be more attractive. If you want to review your current investment portfolio or start investing, please contact us.
Please note: The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.