Active vs. Passive Portfolio Management
The "active" vs. "passive" debate has been raging on for quite a while now in the investment world. Proponents of the active approach believe that a skilled investment manager can add value to a client's portfolio by generating returns that outperform a benckmark index such as the S&P 500. Those that favor the passive approach contend that the best way to capture overall market returns is to simply invest in low-cost index investments that track the performance of the underlying index.
So who is right?
That's not an easy question to answer, and each side of the debate has strong advocates who argue that the advantages of its approach outweigh those of the other. Here are some of the advantages of each approach:
Active Portfolio Management
- Ability to take advantage of market trends
- Ability to shift investments to sectors that are outperforming the overall market
- Tax-loss strategies to minimize capital gains taxes
- Generally lower cost than active management
- Can be more tax efficient