Tuesday, 7th July 2020

This Month's Magazine
Investment types. Active, Passive or Discretionary.

Investment types. Active, Passive or Discretionary.

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 that will follow the index and will be just as efficient at tracking markets down as they are tracking them 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 a personal portfolio of funds for you. Historically, this type of management has only been possible and cost effective for larger amounts but today some very good options are available for sums invested 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.

A few things to remember when considering investments – The Dos and Don’ts:





Consider your objectives and time frames carefully

Buy investment products piecemeal or “off the page”

Understand your risk tolerance and make sure that your investments are in line with it

Assume all that you read in the paper or on the internet is  relevant to you

Engage with an experienced and properly regulated  financial adviser you can work with

Rely on what your friends say they did as a solution for you

Get all advice in writing before making any decisions

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

Feel comfortable and confident with your decisions – if in doubt, don’t!

Do anything you are not totally comfortable with



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