Active Portfolio Management

Before you make even one investment, you must decide on your optimal investment strategy. Two very different strategies are active portfolio management and long term investing. The strategies that you choose for an optimal trading strategy will depend largely on your investment goals. Long term investing offers more benefits and rewards, while active portfolio management is very hands on and may mean checking you investments frequently. The optimal investment strategy is to use long term investing and passive portfolio management instead active portfolio management.

Long term investing means buying and holding, and not worrying about the market conditions as much. Short term situations that may affect the market will not usually affect long term investors as badly, if they have the proper investments and a well diversified portfolio to hedge against risks and market sector downturns. Active portfolio management is usually used by investors like day traders and others who only hold investments for a short period before selling them and realizing a profit. Long term investment portfolio management is completely different. With this management method you will buy quality investments over a wide range of sectors and areas, for a portfolio that is extremely diversified. This minimizes your risks of a loss if a sector or market takes a tumble. Using this strategy, investments are made because of their quality based on hours of research. When your investment portfolio is managed as long term investments, the investments are not sold unless there is a change in the underlying value, and not just based on the market conditions or economic conditions. When a sector is performing badly, odds are other sectors included in your portfolio are doing very well, helping to offset any losses. With active portfolio management the risks are higher, and the investment potential depends on the market conditions. With long term investment management these do not apply. Long term investments are held regardless of market conditions, and may be changed occasionally but are generally bought to hold.

Active portfolio managements is not an optimal trading strategy for many investors who are planning for retirement or expenses later in life, such as college for your children. With active portfolio management money managers are used to make decisions and manage the portfolio, whether it is one person or an entire team. These managers use forecasts, experience, stock price charts, and analytical research to try and outperform the market. Active portfolio management may use money managers, but it does include more changes and higher risks. This is not an optimal trading strategy for long term investing.

Long term investments involve an absolute return strategy. No matter what happens on the market, a long term investment portfolio will usually have some gains if it is well diversified, even if they are small. This is in contrast to active portfolio management, which may have gains at times and losses at others. Long term investing is an optimal strategy because it is better to experience small gains and returns all the time than to experience big gains that may be offset by even bigger losses. With long term investments, you will see an increase in the value of your investment portfolio every year usually, even when some markets are down. With active portfolio management, if your investments are heavy into the losing sectors, you may experience devastating losses.
Optimal Trading Strategy

The first step to choosing an optimal investment strategy will depend on what your investment goals are. Do you want possible short term profits on a market that can be volatile and is very risky, or do you want quality investments that will grow over time and be stable, possibly by using an absolute return strategy? The goals you have set for investing will help you determine the best trading and investments strategies. For most investors, the optimal trading strategy is to use long term investments.

0 to “ Active Portfolio Management vs. Long Term Investments: What’s your best strategy?”

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