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Active vs. Passive Portfolio Management

September 21, 2020
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One of the longest-standing debates in investing is over the relative merits of active portfolio management versus passive management. But what does this even mean?
 
An actively managed portfolio, a manager tries to beat the performance of a given benchmark index by using his or her judgement in selecting individual securities and deciding when to buy and sell them.
 
A passively managed portfolio attempts to match that benchmark performance by mimicking the benchmark allocation, and in the process, minimize expenses that can reduce an investor's net return.
 
Both investing strategies have appeal to them - so which is better? This is a pitfall of investing - there is no silver bullet for investment strategies.
 
Eliminating strategies reduces the tools we have available to meet our goals. And there is a lot we consider - The current economic and market environment, expenses, tax strategies, concentrated positions, time horizon and overall risk. Bear in mind that no investment strategy can assure a profit or protect against losses.
 
Bottom line, we like both strategies for different reasons and it's not uncommon for us to use both!