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Investment planning
Investing is an important part of financial planning as it can generate short and long-term returns to fund your life goals. There are two primary investment strategies you should be aware of – active investing and passive investing.
Investment involves risk. The value of investments can fall as well as rise. You may get back less than originally invested.
Active investing is an investment strategy that aims to outperform the overall market performance by selecting specific stocks, sectors, or asset classes. This approach is usually measured by comparing the performance of relevant market indexes, such as the FTSE All-Share index, which tracks the share prices of more than 600 UK companies. Active managers select companies that are expected to perform better than average and ignore those that are expected to do worse.
Being based on selectivity, active management involves a greater level of investment research and portfolio management intervention. As a result, the approach tends to be associated with higher costs, consequently the aim is to generate outperformance net of these additional costs. Market-matching returns on active management are less predictable, however active managers are in a position (if they so choose) to intervene in times of market stress, to protect the portfolio on the downside.
Passive investing is an investment strategy that involves buying a portfolio of stocks or other financial assets that track or replicate the performance of a specific market index. Rather than actively selecting individual investments based on their merits or drawbacks, passive managers aim to mirror the overall performance of the market.
A passive investment approach because it involves no selectivity and thus significantly less investment research, is typically less expensive than active and carries more certainty in terms of performance relative to the index. However, it also means that the manager cannot intervene and take advantage of opportunities to outperform the market or avoid underperforming areas of the market. Additionally, during market downturns, passive managers are subject to the same losses as the overall market, and cannot take action to mitigate those losses.
A financial adviser can provide valuable guidance and expertise in both active and passive investment management. A blend of active and passive investment styles can be used to reduce investment costs although this will alter the performance and risk characteristics of a portfolio.
Our advisers will determine which approach is best suited for you, based on your investment goals, risk tolerance, and financial situation. Our advisers operate independently, which means they have access to all products and services on the market and can choose the best investment products and funds suited to help achieve your financial goals.
Our recommendation would ideally form part of a full financial plan geared towards meeting your long term financial needs and objectives. Regular reviews and portfolio updates are carried out as per your request to ensure you remain on track.
Contact our team of experts to discuss your active vs passive investing options today.
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