What You Know About Passive Investment Is Wrong!

There is a big amount of false info that’s been circulating about the subject of active and passive investment. As a matter of fact, it stirs a lot of debate to many for quite some time. Apart from that, there is much at stake from salaries of fund managers to retiree’s savings. What seems to be unfortunate here is that, it isn’t possible to try other available investment opportunities by investors. Rather, selecting a strategy needs great deal of analysis and research. It is vital that you recognize the facts from fiction in order to come up with a well informed decision on how you will be able to invest your hard earned money in the best possible way whether you lean on passive or active investment.

Here are the facts that need to be cleared up when it comes to passive investment to help refine the debate between the two subjects.

Number 1. There is no action – if just passive investing is that simple to the point that you just need to place money in index fund and wait for all money to roll in. The truth is, passive investors can work as performers of portfolio observation, discipline and construction.

When developing a portfolio together with passive investments similar to index funds, the action begins by allocating money strategically among varieties of asset classes that can help in achieving long term financial goal. If ever these allocations change, then more action is to be found with passive investors who rebalance their portfolio diligently by making trades return to assets back into their original level.

Number 2. Passive investing attains returns that are below market averages – yes this is true mainly because of the cost but, average returns are in eye of investors. Index funds are seeking to replicate market index so even if they do accurately, it will still be below average for the net of fees. However, index funds usually have lower costs when compared to active funds or to put simply, they have better chances to get near market averages for a long period of time.

Active funds are also charging higher fees for personnel to perform research and trades which eats away at returns as well as contribute to abysmal historical record of matching or even beating market averages.

Number 3. Passive investing is deemed as cookie-cutter strategy – due to the reason that passive investment is not managed tactfully to change with market swings or to take advantage of future events, many detractors of it believe that it can’t beat active investment. But, there’s actually a benefit from the uniformity of passive investing since same strategy can be applied from one investor to the other.

Source: http://thenewblackmagazine.com/view.aspx?index=3729