InvestSMART

From the Bunker: Has COVID favoured a passive investment strategy or an active one?

Has there been any evidence so far if one strategy has handled this crisis better?

By ·
29 May 2020
  • Over the one month period for April, passive investments (6%) outperformed active investments (4.55%) on average total returns.

  • Strategies can include a combination of both the active and passive investment approach

  • Use the HealthCheck feature in the InvestSMART Portfolio Manager to monitor your investment portfolio

Since the beginning of the COVID-19 crisis, the From the Bunker webinar series has examined a diverse range of topics. These topics have ranged from dividends to the Australian banks and how they fared under the COVID-19 crisis. Catch up on previous episodes here

Today's topic took a more higher-level approach and examined the different investment strategies of active and passive. We looked at how each strategy performed against one another.

Passive strategies look to track indices and accept the average index returns. You will not outperform the index or do better than the average; however, you may avoid making the same mistakes made by investors who actively invest. An example of passive investments are the InvestSMART range of diversified portfolios. You can see these capped fee portfolios here.

Active investors, particularly those with value or growth investment strategies, look to control investment choices and can expend hours of research to find the right opportunity. They justifyingly seek an above-market return for their efforts. Our colleagues at Intelligent Investor manage active investment portfolios like the Intelligent Investor Equity Growth Portfolio

Looking at the ASX data for April, the one month average total return showed that passive investments performed higher than active investments. This was also the case for the one year average total return.

This isn't to say that passive is necessarily better than active investments.

During the webinar, Evan and I discussed combinations of both using core and satellite strategies. We also reiterated the importance of a properly diversified portfolio that is matched to your financial goals, time frame, and risk tolerance. We had several questions on income strategies during retirement and how the 'bucket strategy' may help which Evan has previously written about in An investment strategy for retirees.

Tracking your investment portfolio is important so remember to make use of a portfolio tracker like the InvestSMART Portfolio Manager.  This free tool will monitor your investments and see where you may be over or underweight compared to a particular risk profile.

You can watch this week's recording below.

 


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