Active or passive? Tips for building a portfolioSubmitted by National Wealth Management Group on July 16th, 2018
An episode in Vanguard's Investment Commentary series.
In this 16-minute podcast, Vanguard Investment Analyst Dan Berkowitz discusses the key factors to a successful active strategy. Dan offers some tips for building a portfolio and dispels some myths around active and passive investment strategies.
Commentary from National Wealth Management Group:
When it comes to the new age argument between passive versus active, the jury is still out. The only thing that is clear is that the jury will continue to debate on this topic until someone like me in the future refers to this as an "age old argument". There are always three sides to an argument; the side for each party arguing their position and the truth. In this case, we believe that the truth in effective portfolio management involves the use of both index and active investment solutions. However, their is an important caveat Dan Berkowiktz references in his podcast which he calls "active risk tolerance". He defines this as the degree to which an investor can accept underperformance relative to a benchmark before giving up on the strategy. Investors with a low "active risk tolerance" are not likely to stick with an active strategy long enough to realize performance above and beyond the benchmark and are therefore, according to Mr. Berkowiktz, better off investing in an index fund. We couldn't agree more which is why we manage both low-cost index based strategies and actively managed strategies. While we cannot take credit for coining the phrase "active risk tolerance", we firmly believe that one of the most important aspects of effective portfolio management is the investor's conviction in the strategy.