A wealth management service can help structure your investments appropriately, according to your financial goals, with the aim to generate strong returns relative to your level of risk.
As such, you’ll need to consider the type of wealth management you need, and how your chosen experts will execute your investments – whether that be through a passive, active or combined approach to investing.
Read on, to learn what passive wealth management is and why you should consider it.
What Is Passive Wealth Management?
Passive wealth management involves a wealth management service that takes a passive approach to investing on your behalf, as a means of aiming to grow your wealth.
Passive investing is the opposite of active investing and aims to replicate chosen market benchmark indexes. These benchmarks are used as a standard to measure market performance, by which you can track how well the market is doing.
This strategy involves investing in line with a chosen benchmark index, usually through passive index funds or exchange-traded funds (ETFs), which are structured to track the underlying securities.
Investing in these passive funds usually forms part of a long-term investment strategy, and aims to maximize returns according to your given level of risk. This approach has typically outperformed the returns from active managers over the long term.
Passive wealth managers aim to ensure you’re making the most appropriate investments that align with your financial goals and build your portfolios thoughtfully and cost-efficiently with the right asset mix.
For instance, Netwealth wealth management provides a passive investment approach to help keep the total costs of investing low, which can help to generate better net returns. Their experienced team also combines some elements of active investment, deciding what the appropriate and strategic allocations of investment should be – how to implement a globally diversified mix of appropriate investments.
Why Should You Consider Passive Wealth Management?
There are many reasons why you should consider a wealth management service that specializes in passive investing, including:
The Benefit Of Long-Term Investment
Passive investing aims to reflect the performance of the market benchmarks using index ETFs, and can therefore require fewer adjustments to your portfolio’s allocations – and lower costs.
You can hold your positions for a long time, raising the potential of boosting your long-term profits.
This strategy does not try and outperform market indices, unlike active investing.
Diversification is also key to managing risk, and passive investing in ETFs means holding a position in multiple underlying assets, and many types of investments, such as stocks, commodities, and bonds.
Easier And More Cost-Effective Investing
Another benefit to passive investing with a wealth manager is that you can often have a much smoother and more cost-effective experience of investing.
Active investment managers tend to trade more often, which can cost more, and they are never guaranteed to beat an index, especially over time.
Investing on your own can also lead to more long-term costs, as investments you make – even if they’re initially cheaper – will need wrappers or platforms to host the investments, leading to higher percentage costs. It is also a challenge to effectively diversify your portfolio at the right price.
A wealth manager who focuses on passive investing can invest on your behalf, saving you time and also helping you to overcome the behavioural biases that many investors face.
Also, wealth managers usually only require one straightforward fee, with clear and transparent charges quoted upfront.
Passive wealth management can be hugely beneficial for the majority of investors and is a service you should consider if you’re looking to establish time-effective and cost-efficient investments for your future.
Please note, the value of your investments can go down as well as up.