November 1, 2016

Advancing Your Investments

We pay close attention to the broad universe of characteristics defining investment vehicles that will help you forge the strongest path to success. One of the most widely-debated topics in this area is whether to employ an active or passive investment philosophy. This debate applies to the type of investment vehicles that will make up a portfolio, as well as how the portfolio as an aggregate will be managed, monitored and maintained. In this brief, we will focus on the investment vehicles.

Active Investing: This strategy involves ongoing buying and selling actions by the portfolio manager that deviate from an underlying index or benchmark. Active investors purchase investments and continuously monitor their activity in an attempt to exploit profitable conditions.

Passive Investing: This strategy aims to maximize returns over the long term by keeping buying and selling to a minimum. Index funds are the most common way to gain exposure to passive investments; the idea is to avoid the fees and drag on performance that can occur from frequent trading. Passive investing is not aimed at making quick gains—or getting rich with one great bet—but rather on building slow, steady wealth over time.

At PEAK, we favor using predominantly passively-managed investment vehicles to build our clients’ portfolios. Each position selected will provide pure exposure to an investment genre we feel will benefit the diversification and risk/return characteristics of the overall portfolio.

There have been countless studies proving that the vast majority of actively-managed funds and other classified investment vehicles fail to meet or exceed the indexed benchmark performance representing their peer group. And, because a diversified portfolio needs exposure to a minimum of 8-10 asset classes, the chance of choosing actively-managed funds with superior performance for each becomes increasingly remote. In portfolios comprised of mostly active funds, some outperform and some underperform—and at best, the collective performance falls in line with a similar portfolio of all passive funds or positions. Additionally, under active management, the underlying fund managers change the composition of their funds regularly and only have to report holdings quarterly. At the portfolio level, this scenario can lead to significant cross-diversification, overlap and concentration risks.



At PEAK, we are portfolio managers dedicated to putting you on the path to success. We are against utilizing predominantly actively-managed investments as we believe they would limit our ability to be precise in the composition of your portfolio at any given time, posing potential risks, costs and unknowns that could otherwise be avoided.