Which Investment Strategy Is Right For Me?
Most investors jump into the world of stocks and bonds without knowing much about these instruments. Instead of buying individual stocks and trading them, they choose to work through funds and fund managers. Funds fall into the broad categories of active versus passive management. By considering their individual needs, most investors can therefore decide what investment strategy they should pursue.
Passive investment strategies are useful for individuals who are trying to bring in income without a considerable amount of worry or effort. They involve investors using index funds that broadly buy and hold a large number of stocks. These funds charge a paltry fee rate and have considerable returns year over year. They are for investors who do not fret about the daily ups and downs of the market. These funds simply buy a massive number of stocks and hold on to them until they decide it is time to trade or sell them. They may reflect the S&P 500 or the stock market as a whole. Both of these factors have increased nearly every year over the past 80 years or so. As a result, the passive investment strategy has won support from many prominent investors.
Active funds, on the other hand, change considerably on a regular basis. They are run by active managers at companies like community banks who pick specific stocks and bonds, and exchange traded funds for an individual to hold on to. The investor then garners whatever return the active manager secured. Funds may be targeted towards a person’s retirement and may fluctuate depending on their retirement date. These funds have much higher fees than passively managed funds because they pay an individual for the time and transfer fees it costs to manage the fund. They are beneficial for those who want to see their portfolios remain high even when the market is taking a downturn. These funds will lean towards stocks when the manager believes the stock market will rise and lean away when they believe it will fall. In many instances, fund managers are highly experienced and have years of research and portfolio success behind their decisions.
Active and passive management are suitable for different people at different times. They are beneficial strategies because they reflect the unique priorities that investors might have. Meetings with advisers at community banks can help individuals consider their priorities and the strategies that are available to them. These priorities undoubtedly shift depending on the individual and his or her investment goals. Possible investors need to keep these priorities and goals in mind when trying to decide which investment strategy is right for them.