Investing in 2017 - Active, Passive or Both?

If you asked a room full of Certified Financial Planners which is better, passive investing or active investing you may find the room divided 50/50.

Proponents of each perspective have both anecdotal examples and impressive data to support their position. Heated discussion among wealth managers not only promotes their position, but may also try to refute the opposite position.

That’s what makes CFP Craig Price, owner of Price Wealth Management in Stuart, Florida unique.

Price believes in a Dual Approach of Passive Investing AND Active Investing. We asked Price to explain the philosophy behind the Dual Approach he recommends to his clients.

The following is his detailed response.

We believe passive and active styles of investing are like salt and pepper. They go well together, and everyone has an opinion about what suits their particular taste.

Passive index-based investing stands on solid theoretical grounds and has strong empirical support. It is transparent and low cost, and has proven to beat the majority of active investment strategies. Passive portfolios do not attempt to “beat the market.” Rather, passive portfolios try to “be the market,” — or at least be very close. Passive index-based management does not involve taking any company-specific risk.

Our clients particular passive index portfolio is built within their own risk tolerance band. Each index Exchange Traded Fund (ETF) in your portfolio is selected based upon disciplined criteria: low fees, trading liquidity, desirability of the asset class, and minimal tracking error.

What’s the best balance of Passive and Active strategies?

Salt & pepper, peanut butter & jelly, passive & active: there is no universal formula to suit everyone. However, there is a best balance of passive and active investment strategies for you which is based on the particular circumstances of your life. Determining your best balance is one area where we can be helpful.

Price Wealth Management offers an actively-managed institutional strategy which pairs favorably with indexed portfolios. The strategy is managed by Victrix Investment Advisors for no additional client fee. Victrix employs a value-based strategy to identify attractively priced stocks and “special situations.”

Active Portfolio Characteristics

The portfolio characteristics are:

Long-only. Securities are not be sold short, nor is margin debt used.

Clients should expect 20 or fewer portfolio holdings.

Low Turnover. We have a long investment time horizon.

Special Situations. Portfolios display a preference for special situation investments, which have a specific catalyst to drive value realization.

Broad Asset Class Mandate. Portfolios are “go anywhere” but will not own real assets, commodities, or futures, and will not make private equity investments.

Limited Industry Diversification. Diversification will be achieved through different value realization drivers, not through the number of securities or industries.

The catalysts can be spin-offs, restructuring, new management, or new product cycles, to name a few. Catalysts like these can occur in any economic or market environment, and can provide clients with performance which does not closely correlate with a passive index portfolio.

For more information on Active and Passive Investing visit: http://www.pwmchartingyourcourse.com/