Let your objectives determine your investment strategy

What type of investor are you? How you answer that question and the types of investments you choose should be based on your goals and objectives.

There are two basic types of investment strategy – active and passive. Both have benefits, value and serve different purposes. Which one is right for you ultimately will depend on what you are trying to achieve.

“Recently we have seen a lot assets move to passive structures and Exchange Traded Funds,” says Kathrin Forrest, portfolio manager with Sun Life Global Investments. “The objective of the typical investor is to save and grow their money for a house, retirement, their children’s education or some other purpose but both passive and active strategies can serve a purpose, have value and be the right option in different situations. It all depends on what you are trying to achieve.”

Passive investors generally invest for the long term. Passive investments limit the amount of buying and selling that takes, generally making them cost effective. The strategy requires a buy-and-hold mentality that resists the temptation to react to market and economic volatilities or anticipate the stock markets’ next moves.

A prime example would be to buy an index fund that follows one of the major indices like the S&P 500 or the Dow Jones. In buying into an index you are buying tiny pieces of hundreds or even thousands of stocks. Returns are made as the individual stock prices rise over time. Successful passive investors keep their eye on the big picture and ignore the short-term setbacks and/or sharp downturns.

However active investing, as the name suggests, involves a more hands-on approach and requires someone to act as a portfolio manager. The goal is to beat the market’s average returns and take advantage of short-term price fluctuations. In general it requires more detailed knowledge and expertise to know when to buy and sell particular stocks, bonds or other investments and involves a team of people who will research markets and investments and make recommendations.

Each investing strategy has its own benefits and drawbacks.

Passive investing usually has lower costs and fees and less risk but may have smaller returns than the active approach. Proponents of active investing might say that passive strategies are limited by being tied to a specific index and get smaller returns because their core holdings are locked in to track the market and passive funds rarely beat the market.

Active investors want to beat the market and can use varying techniques such as short selling or put options to generate higher returns. The returns may be higher, but so is the level of risk.

One of the big debates concerning the two different approaches revolves around costs.

Active portfolios generally will have higher costs and fees. Buying and selling triggers transaction costs and fees to cover the salaries of the portfolio’s manager and analysts who research investments and markets.

Passive strategies aren’t free however, and may involve some transaction costs as well as management and trailer fees.

Over the course of a lifetime there probably is a place and time for both types of investment strategies.

“There is value in both,” Forrest says. “Both serve a purpose and both can be used within a portfolio. Investors should be open minded to the full set of options available to them and choose those which will help them achieve their objectives. It all comes down to what you want to achieve.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Just Posted

Red Deer College waiting for feds to finalize marijuana legalization

Like businesses, Alberta and municipal governments, Red Deer College is waiting for… Continue reading

Class size only part of the problem say Central Alberta teachers

Though the Alberta auditor general’s report points out that classroom sizes continue… Continue reading

Lacombe County promoting crime prevention measures

County pushing Crime Prevention Through Environmental Design principles

Red Deer doctor concerned about patient transfers to rural hospitals

Family physician says the move creates less incentive for expansion at Red Deer hospital

Fire permit season begins in March

Earlier springs in last few years prompted Alberta government to move up fire permit season

WATCH: Red Deer’s River Bend upgrades officially open

River Bend Golf and Recreation Area is the latest venue to be… Continue reading

How to keep local news visible in your Facebook feed

Facebook has changed the news feed to emphasize personal connections. You might see less news.

In Pyeongchang, maintaining Olympic venues relies on a poor, aging workforce

GANGNEUNG, South Korea - Hockey players from Finland were circling with the… Continue reading

Trudeau’s fashion missteps highlight what not to wear on vacation

TORONTO — The traditional garb that Prime Minister Justin Trudeau and his… Continue reading

Stores make push in scan and go tech, hope shoppers adopt it

NEW YORK — Shoppers at self-checkout lanes scanning all their groceries after… Continue reading

‘Stars seemed to have aligned’ for new Halifax CFL bid, commissioner says

HALIFAX — CFL fans in Halifax have been told the league is… Continue reading

The language of ‘Black Panther’? It’s real. Give it a try.

OTTAWA — The military’s top general has promised to get to the… Continue reading

5 things you probably didn’t know about the Oscars

LOS ANGELES — You have a firm grip on this year’s Oscar… Continue reading

Most Read


Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month