What is Passive Investment Management?
There are many choices you have regarding your investments. The investment growth of your portfolio will largely determine whether you accomplish all your goals, most of your goals, or only a few of your goals.
One of the most critical decisions at the beginning of an investment strategy is deciding whether to invest in managed funds for your stock, bond, and other alternative investments, or to invest in individual securities. Managed funds are pooled investments which contain dozens or even hundreds of different securities that reduce the risk of holding just a few individual stocks or bonds.
There are many asset management firms that offer many different types of funds - from different markets such as large cap stocks, to different sectors, such as technology. But whichever fund you choose, your fund manager will adopt one of two styles to managing your money - Active or Passive investing.
Since Carr Wealth Management first began managing client investments in 2000, the firm has always adopted the use of passively managed funds, or funds that are designed to track their related benchmarks. It's important to understand the difference between active and passive investment styles, and I hope the information below will help you better understand.
Let The Markets Work For You, Not Against You.
Passive manager's generally believe it is difficult to out-think the market, so they try to match the performance of the market (or their chosen sector) as a whole. Passive managers do this by buying and holding all or a representative sample of the securities (stocks or bonds) in the index. Passive investing also keeps management costs low. There is no need to research companies or bonds, and transaction costs are reduced because less trading is done.
The advantage of this approach is that it spreads risk broadly within a market or sector, avoiding the losses that can follow a dramatic decline in any one sector. However, risk is spread rather than avoided. The passive approach cannot protect against broad market declines, as it follows the market or sector as a whole.