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The Art of Successful Financial Planning
When it comes to financial planning for the longer term, that’s when things become more difficult. Investment options, tax reduction and investor protection are some of the important factors to be considered. |
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Investment types Active versus Passive
There have been many words written to argue in favour of either active or passive investments and it is fair to say that both have their merits. - By Richard Alexander Dip. PFS
An active investment is one that typically has a fund manager or team who are dedicated to achieving a number of stated objectives. They will be anticipating market trends and making their decisions based on research and knowledge, with a view to providing the best possible return within the risk profile and constraints of the fund.
Many commentators have argued that actively managed funds have failed to outperform their relevant index when taking into account all charges and that index tracker funds offer better value as a consequence. In some cases this may have been true but not always particularly in volatile market conditions.
Funds which are designed simply to track an index are passive funds. They are run by a programme which will follow the index and will be just as efficient at tracking down as well as up. Charges are typically much lower and depending on what period of time you compare, they could appear to offer better value – choose a different period and the reverse may be true! A third alternative is to seek out a Discretionary Fund Manager (DFM) who will actively manage portfolio of funds.
Historically, this type of management has only been possible and cost effective for larger amounts but today some very good options are available from as little as 50,000 Euros. The DFM will structure a portfolio of funds, to support the aims and objectives of the individual, within an agreed risk tolerance. They may even include some passive funds from time to time. Managed properly, this type of active management should outperform, but that is down to the individual fund manager of course.
And finally some investment do’s and don’ts to remember:
| DO |
DON'T |
| Consider your objectives carefully |
Buy investment products piecemeal |
| Understand your risk tolerance and that your investments are in line with it |
Assume all that you read in the paper 5elevant to you |
| Engage with an authorised financial adviser you can work with |
Rely on what your friends say they did as a solution for you |
| Get all advice in writing |
Be persuaded by product salesmen that their product is just what you want – remember, square pegs do not fit exactly into round holes! |
| Understand what you are committing to |
Engage with unauthorised / unregulated advisers |
| Know what it will cost you by way of fees, charges and commissions |
Be attracted by offers of high returns– if it looks too good to be true, it probably is! |
Plan to review regularly – once as year is
probably best |
Assume that a well known name means that they are right for you |
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Feel comfortable and confident with your decisions |
Do anything you are not totally comfortable with |
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