Active investments against passive investments

Foto por Lukas em

In active investments, the investor uses his knowledge of the market so that the money works for you, that is, in this case the investor makes entries and exits in his positions at the best possible times.

Whereas in the case of passive investments a more conservative asset allocation is defined, for this purpose, the composition is simply maintained over the long term.

In order for active investments to surpass the market average, they invest in highly qualified management teams, access to various databases, software, etc., and therefore charge an administration fee many times higher than a passive investment that basically requires a computer.

In practice, few active managers manage to outperform the market and the longer the term, the smaller the universe of winners. In other words, it is not only difficult to find them, but it is extremely important to adapt the portfolio over time as many of these winners will have difficulty maintaining their leadership as time goes by and, therefore, it is up to us allocators to know the time to enter and the time to leave.

Foto por Dziana Hasanbekava em

Many investors think that passive investments are less risky, however, sometimes the reverse is true. If we have a thorough understanding of the stock market and its movements, active management allows us to avoid losses, something that will be more complex to avoid with a passive fund, however, passive funds have other advantages.

Usually, active funds have a higher consumption in the management and performance fee. For this reason, it is known that these funds perform better than liabilities. However, this is not what American studies demonstrate. In the long term, funds with an active mandate that exceed the performance of stock indexes are rare.

One of the reasons for this is that these indices are legitimate numbers, without any cost write-off, while resources have operating costs, which are deducted from their final behavior. Operating and brokerage costs are hard to quantify for investors. In the active combination of equity funds, mediation has a greater presence, appropriate to the greater exchange of assets, when related to passive management.

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