The risk of Passive Investing

Of the total assets invested in US Mutual funds, 40% is invested in passive funds, up from 37.4% a year ago. According to PwC, the proportion of assets in passive strategies will achieve parity with actively managed funds by 2025. Moody’s Investors Service thinks parity will be reached four years sooner in 2021.

The explanation for the difference in the predictions lies in the separate assumptions about how quickly investors will switch money into passive tracker investment funds. Tying projections to historical annual shifts and consideration as to whether a market downturn would put investors off passive tracker funds are also factors.

At Philip J Milton & Company, we do not favour the passive approach which simply invests in things because ‘they are there’. Passive funds have a place but the more money that chases the same things then the higher they become without any underlying reasoning and rationale. Passive funds are often promoted as being low cost. Passive index tracking investors could indeed chase the markets up the steep cliff but would also chase them right over the top – and then, ‘low cost’ is suddenly ‘very expensive’. With an active fund manager, you are paying for advice and guidance which we feel is vital, especially in times of increased market volatility.

We offer a range of actively managed ISA, Portfolio and Pension investment models which can be established from as little as £1,000 for lump sum investments or £50 per month for regular saving. We monitor clients funds daily to ensure we can adapt to changes in the market and maximise investment opportunities. In addition, a client with discretionary managed investments is entitled to annual reviews at no extra cost. We believe it is important to ensure the continuing appropriateness of the investment in relation to the individual’s attitude to risk and financial objectives.

If you would like to know more then please do contact the office to arrange a meeting or telephone appointment with one of our highly qualified advisers who will be more than happy to discuss your options. The initial meeting is offered at our cost.

The value of stockmarket investments and any income from them may fall as well as rise and investors may not get back the amount originally invested. Yield figures may vary and are not guaranteed. It is advisable to hold these investments for a minimum of five to ten years, over which periods stockmarket returns have shown themselves to be historically superior and broadly predictable through both good and bad times. Past performance should not be seen as an indication of future performance.