Toward the end of the year, it’s easy to get distracted by other things in your life: the holidays are approaching and school is back in session, work is picking up and social obligations are added to the calendar. While it’s important to live a balanced life, it’s also important to stay active and involved in your financial life. So many times after someone hires a financial or wealth advisor, they stop paying as close attention to their finances. But just because you have an expert helping navigate your investments and finances doesn’t mean it’s time to sit back. It’s vital to stay active.
I’ve found that there are two types of approaches when it comes to financial investment: active and passive. Passive management is usually investing in index funds. You invest money in an index fund, which follows the market of that fund. It is normally low cost and relatively easy to do but can result in higher taxes, and risk can also be higher. Due to just achieving the index return, when fees are deducted, it can result in you always underperforming the index. Also, you still have to decide on asset classes, allocation, and rebalancing the allocation to manage risk.
On the other hand, an active management approach means that your advisor selects managers who buy and sell securities based on their analyses and do not just follow an index. An advisor may also select individual securities. While their performance may be compared to an index, they will perform differently than the index. They may perform higher or lower, but you do have the chance to outperform the index. Fees are normally higher. It can be more complicated, but tax efficiency is better, and risk can be managed more effectively.
To determine which management style best suits you — or the best combination for you — go to tswealth.com for more information.