Get to Know ‘Active Management’ a Little Better
- Many investors don’t understand what “active management” really means.
- Active management involves avoiding a “buy-and-hold” strategy in favor of dynamic adjustment.
- Effective active management requires strategy, discipline and a critical view of investing.
Many investors we meet erroneously believe that active portfolio management describes a process wherein a fund manager makes buying and selling decisions aimed at capitalizing on periods of market growth and beating market gain averages.
True active management refers to a highly dynamic, complex approach to investing that seeks to secure gains in any market, bear or bull. Dynamic diversification occurs in response to shifts within a market environment and is generally driven by algorithms and mathematical models that factor risk, historical precedent and other weights across industries, asset classes and regional markets.
Active management makes sense for multiple reasons.
First, buy-and-hold assets (or “passive” management) typically appear strong in bull markets, but can lose value in bear markets, making long-term viability and profitability hard to ascertain when it’s time to build a strategy and buy in.
Second, passive management does little in real-time to mitigate risk and respond to tectonic shifts within a market; active management, conversely, can adapt and adjust as needed. This is especially important for investors nearing retirement, who are most sensitive to large gains or losses close to withdrawal time.
Third, active management, by its nature, can mitigate the effect of “emotional investing” by leaving most decisions to the algorithmic strategy aligned to an investor’s goals. Bull and bear markets – or on their extreme end, booms and recessions – may influence investors to make hasty decisions with long-term consequences. A model-based approach to investing recognizes that a series of small, calculated gains and losses is more dynamic – and potentially effective – than “buy-and-hold” acquisitions.
If you are planning on investing in your future, or the future of your loved ones, don’t take a “wait and see” approach. Reach out to Cypress Private Wealth to find a strategic partner that has the experience, knowledge and skills to build a robust plan that’s right for you.
There is no guarantee that an investment strategy will yield positive outcomes. Investing involves risk, including loss of principal. The advisors of Cypress Private Wealth are Registered Representatives with, and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice is offered through Strategic Wealth Advisors Group, LLC, a registered investment advisor. Strategic Wealth Advisors Group, LLC and Cypress Private Wealth are separate entities from LPL Financial.