Active vs Passive Investing: Which is the correct investment strategy for Expatriates living in Singapore?
5 November, 2019
When it comes to investing in the Share/Equity/Bond markets we are faced with a strategic investment decision. Should I as an investor use active or passive management?
An actively managed investment fund has a team of managers actively making investment decisions for the fund. The goal of an active manager is to beat the market. In order to do this active fund managers will pay close attention to market trends, shifts in the economy, changes to the political landscape, and factors that may affect specific companies.
Possibility for lower volatility, reduced risk and greater returns: During times of economic uncertainty an active manager can sell a large percentage of their stocks and hold cash. This can reduce losses when the market reacts to certain events.
Given that expertise is required for Active management the funds that take this approach tend to have higher fees.
The majority of active funds don’t beat the index and
that is why you would pay an Adviser or Wealth
Manager for advice. They should be able to find you the
ones that do, and thus add value.
Passive investing requires an investor to hold their investment for the long-term and to limit the amount of buying and selling within their portfolios.
A prime example of a passive approach is to buy an index fund or electronic traded fund (ETF) that follows one of the major indices like the ASX 200 (Top 200 companies in Australia) or the S&P 500 (Top 500 Companies in the U.S).
Ultra-low fees: Passive investment requires minimal buying and selling. A passive strategy does not have a management team making investment decisions, this makes it a very cost-effective way to invest.
Passive management is subject to total market risk. Unlike Active management there are no defensive measures put in place to protect the investor against the volatility of the market.
There are over 5,000 ETFs worldwide, yet only around
100 in Singapore. Does your Financial Adviser firm have
a Securities license? If not they may not be able to advise
you on a sufficient range of ETFs.
Which investment strategy best suits you?
When choosing between active and passive management an investor must consider:
- Investment timeline
- Attitude to risk
- Return and benchmark expectation
- Currency (AUD, SGD or USD)
- Tax minimization
Book a complimentary consultation with Senior Financial Adviser Sean Abreu to find out which strategy best suits you.
Nothing on this website should be considered financial advice of any kind. Please consult your professional adviser before making any investment decision. Any content on this site relating to tax matters is for general information only, may not be up to date, and should not be considered tax advice of any kind.