Before any asset allocation decisions or active versus passive fund selections take place, investors need to make the all-important active decision to invest in the first place. Most people invest in order to achieve certain financial goals, with a comfortable retirement at the top of the list. However, as the old saying goes “a goal without a plan is just a wish.” Investors need to actively plan for retirement. And this requires creating an investment strategy that is congruent with their unique situation and circumstances. Also, as investors transition through different life stages, their circumstances change and the investment strategy needs to be adjusted accordingly.
However, a recent study conducted by Dreyfus reported that 49 percent of investors had yet to reevaluate their investment approach a full eight years after the financial crisis. Obviously, these investors are now eight years closer to retirement and undoubtedly many have been through impactful changes that should require an adjustment to their investment strategy. In our view, there shouldn’t be anything passive about financial planning or reassessing the investment strategy.
Investors favoring passive strategies are correct that it’s never been easier to inexpensively access all types of different market indices. And this exposure can be achieved without having to pick stocks and bonds. However, just because these passive puzzle pieces exist, doesn’t mean it is any easier to put the puzzle together. There is no passive fund that will provide relief from the challenges that every individual investor or professional portfolio manager faces—what to buy, how much, and when. And these impactful decisions will always require active management, regardless of the building blocks investors utilize within their portfolios.
Daniel Eye, CFA, serves the firm as senior portfolio manager and investment committee lead for Roof Advisory Group. Roof Advisory Group is an independent registered investment advisor located in Harrisburg, Pa., serving clients across the USA for almost 20 years.