Active investing versus passive investing There’s no magic formula to ‘beat’ investment markets, but a combined approach to investing, through active and passive management could help. When it comes to investing, there are two This has led to greater competition will discover there are active managers who schools of thought: those that believe you and debate between the advocates of are above and below the index. can ‘beat’ the market through careful stock both approaches. Genesys has always maintained that high picking and market timing (active investing) There are a number of advantages and quality active management coupled with and those that believe you can’t. disadvantages to both approaches. Active passive investments provide the best of Those that say you can’t beat the market managers offer the possibility of above both worlds and can lead to a successful claim you should invest in the same index returns which of course index funds outcome for clients. Active managers securities in the same proportions as a do not. The notion that active managers provide portfolios with the opportunity and market index. This approach is known as can beat the index through a combination potential to exceed objectives, whereas indexing. As no decisions are made about of research, skill, knowledge and experience passive managers can be used to lower costs which securities to buy and sell (you simply makes logical sense to most investors. and as substitutes in asset classes where buy them all via an index fund or Exchange Another advantage promoted by active active management does not have a good Traded Fund), it’s considered a passive style managers is their capacity to limit the extent track record of outperformance. of investing. of market falls by actively changing the The ideal combination will largely depend on makeup of their portfolios to best effect. According to Vanguard Investments, one your own specific time horizon, preferences, Obviously index funds can’t do this either. of the pioneers in index investing, active investment goals and tolerance for risk. How fund managers comprise about 90 per The fundamental advantage an index fund much to allocate to passive versus active cent of the market. Passive investing made has over an actively managed fund is cost investment strategies is a complex decision its appearance back in the 1970s and has (they are far cheaper) and the fact that that requires careful planning and execution. emerged as a serious investment strategy active managers have an inconsistent record Your Genesys adviser can discuss this with since then. Its growing popularity has been of outperforming the index (particularly you to ensure your future wealth goals significant recently following widespread after fees) despite the advantages they claim are achieved. disappointment with active managers’ to have. Performance tables provide all the results during the global financial crisis evidence you need. At any given time you 08306-11-09P 3 Genesys Wealth Advisers Ltd ABN 20 060 778 216 Australian Financial Services Licence No. 232686 Principal member of the FPA www.genesyswealth.com.au Important information The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.