Orlando Financial Planning & Management

Orlando financial planning services by Legacy Financial Advisors is a great first step towards investing and creating wealth. Investment management is a key component to planning your financial future in addition to retirement planning, Medicare planning, social security planning and caregiver planning. Investment management can be active or passive. Sometimes, that simple, fundamental choice can make a difference in portfolio performance. During a particular market climate, one of these two methods may be widely praised, while the other is derided and dismissed. In truth, both approaches have merit, and all investors should understand their principles. Our Orlando financial planning services can help you understand and execute a wide variety of investment strategies.

Passive Investment Management

How does passive asset management work to help with your Orlando financial planning strategy? A passive asset management strategy employs investment vehicles mirroring market benchmarks. In their composition, these funds match an index – such as the S&P 500 or the Russell 2000 – component for component. As a result, the return from a passively managed fund precisely matches the return of the index it replicates. The glass-half-full aspect of this is that the investment will never underperform that benchmark. The glass-half-empty aspect is that it will never outperform it, either.

When you hold a passively managed investment, you always know what you own. In a slumping or sideways market, however, what you happen to own may not be what you would like to own.

Active Investment Management

Active investment management attempts to beat the benchmarks. It seeks to take advantage of economic trends affecting certain sectors of the market. By overweighting a portfolio in sectors that are performing well and underweighting it in sectors that are performing poorly, the portfolio can theoretically benefit from greater exposure to the “hot” sectors and achieve a better overall return. This can be a crucial factor in your overall Orlando financial planning strategy.

Active investment management does involve market timing. You have probably read articles discouraging market timing, but the warnings within those articles are almost always aimed at individual investors – stock pickers, day traders. Investment professionals practicing dynamic asset allocation are not merely picking stocks and making impulsive trades. They rely on highly sophisticated analytics to adjust investment allocations in a portfolio, responding to price movements and seeking to determine macroeconomic and sector-specific trends (asset allocation does not assure a gain and does not protect against losses in a declining market). The dilemma with active investment management is that a manager (and portfolio) may have as many subpar years as excellent ones. In 2013, more than 80% of active investment managers outperformed passive investments indexing the S&P 500 (which rose 29.60% that year). In 2011, less than 15% did (the S&P was flat for the year).1,2

Citations

1. forbes.com/sites/investor/2015/03/30/active-versus-passive-management-which-is-better/ 3/30/15

2. macrotrends.net/2526/sp-500-historical-annual-returns / 2/2/17

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