Considering Your Investment Style

Active versus passive mutual fund investment strategies are often hotly debated in the financial industry. An active approach tries to beat a benchmark through superior stock picking, market timing, and every strategy in between. In the opposite corner, fund managers who use a passive approach are looking to match the returns of the benchmark that the fund is designed to track. Small differences in returns over the short term have a lasting long-term impact when compounded annually, and investors should consider a few factors when they decide on an investment strategy:

  • Expense ratios. Higher expense ratios make it harder for fund managers to outperform their benchmark in the long-term. Because investment expenses are deducted from a fund’s performance, it gets progressively harder to outperform the market in general.
  • The use of appropriate benchmarks. Making sure that investors and advisers are using appropriate benchmarks when discussing portfolio returns is key to making the best, most well-informed investment decisions.
  • Turnover ratio. Knowing turnover ratio is the best way to measure a fund’s trading activity. Additionally, if an investment is part of a taxable account, turnover ratios can create unwelcome taxable events for the investor – making them that much more important to study.

To learn more about active versus passive mutual fund investment strategies, you can read our article in the Columbia Daily Tribute Investment style deserves careful consideration.

As a financial planner specializing in comprehensive financial planning, Tim enjoys helping clients in Columbia, MO with managing their taxes, financial risks and other financial issues.

If you would like to learn more about this and other personal financial planning topics serviced by Clarity Financial please contact us at 573-447-7007. Clarity Financial, LLC is a fee-only financial advisory firm in Columbia, MO. Appointments are welcome and initial consultations are free. 

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