Active & Passive Investments

There are two basic schools of thought concerning investments: active and passive. We typically favor active management, although we occasionally use a fund with passive management.

An active management approach suggests that a portfolio manager can either beat market returns or achieve returns similar to the market with less risk. We believe there are active funds with strong performance records relative to index funds. We also believe that these active funds tend to share similar characteristics, and thus have a high likelihood of adding value over a full market cycle.

The passive investing approach suggests that cheap exposure to stock and bond markets (usually via index funds with small expense ratios of perhaps 0.1%) outperforms active management (which has higher expenses of between 0.5% and 1.5%).