Active vs. Passive Investing

Oftentimes, we are asked about our opinions on active versus passive investing. At IndiWealth, we do not believe anything is passive when investing. By making the choice to invest at all, that is an active decision. Also, understanding why you invest and what you choose to use to achieve your mission should never be considered a passive exercise. 

After choosing to invest, asset allocation becomes an active choice. Choosing which assets to use for safety versus those that have greater potential for growth, and the balance between them, is an active decision. The proper balance of safety and growth should be determined by the objectives for the money, the risk needed to accomplish the objectives, and the timeframe needed. These active decisions will have the most significant influence on your ability to achieve the mission for your money.

The discussion about active versus passive often refers to investments that are indexed-based strategies and don’t incorporate active decision making in the security selection process. A good example is an exchange traded fund (ETF) or mutual fund that invests in the S&P 500 index. These are some of the largest investments in the world and are often used for their diversification and relative low cost. Often, these index-based strategies are terrific products to use as part of an active asset allocation strategy designed with your particular objectives in mind. Index-based funds are designed to follow an index, but it still requires understanding of what you own, the purpose of the asset in your portfolio, and the exposures and risks inherent. This is also an active decision. 

At IndiWealth, we invest to help you achieve your mission. To do so, we will incorporate active and index-based strategies as a set of tools within the portfolio. We will only incorporate an investment as necessary and as a means to a solution. When a low cost fund is the appropriate tool, we will incorporate those as part of our strategy. If an actively managed investment provides a better solution, we will incorporate those as well. As a completely independent firm, we are not bound by restrictions of any product. We will use the right tool for the job. 

So remember, when someone uses generalizations like “active beats passive” – understand they are talking about something that only makes up a small portion of the overall investment process. By being deliberate and thoughtful about investment plans, which incorporate your objectives, your time line, your risk tolerance, and any constraints, that is an active decision that will allow you to achieve your mission. Investing is not a passive proposition and IndiWealth is here to help guide you through the active process.