What you need to know about actively managed portfolios

Key Points

  • If an investment professional is making frequent decisions to buy and sell certain investments on your behalf, then your portfolio is being actively managed.
  • Passively managed portfolios, on the other hand, typically track an index.
  • Your investment goals and risk tolerance may dictate the best approach for your portfolio.

Basically, “actively managed” means that your money is being handled by a professional money manager, co-managers or a team of managers who are making decisions on what investments to buy, hold and sell. Managers use a variety of tools, including Wall Street research, forecasts and their own judgment to make these decisions. This is different from passive investing that usually refers to investments that follow a particular market index or group of indices.

Some investing companies take active management a step further and create a special diversified product with an eye toward asset allocation and specific investing goals. These managers choose a group of mutual funds and/or exchange traded funds in a variety of asset classes, such as stocks, bonds, international securities and real estate to create the asset allocation that is tailored toward a particular individual’s needs and goals.

Advantages and disadvantages of actively managed portfolios

Active management can give you access to investment professionals who often strive to manage risk and limit portfolio volatility with the goal of delivering a more consistent return over time. They may also rebalance the portfolio on a regular basis to help stay in line with the original investing goals.

As with any investment, there are risks from market and economic volatility as well as other factors that may be difficult to predict. But, many actively managed portfolios use a diverse mix of investments and asset classes that together help manage risk. When one sector of the portfolio is lagging, others may be thriving. Professional managers are also often able to move in and out of risky or overly volatile sectors far more easily than individual investors.

Is an actively managed portfolio right for you?

If you’re focused on generating income in your portfolio, protecting your assets and creating enough growth to see you through 30 or more years of retirement, then an actively managed portfolio may be a good option for you. Many active managers focus on providing growth and income while managing risk. But, before you choose active management for your portfolio, make sure this investment strategy aligns with your goals and risk tolerance.

Ask your advisor for more information about actively managed portfolios.


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