Active management is an investment strategy where finance professionals or investors consider numerous factors that could impact an investment’s performance. That helps them consider potential risks, tax benefits, and investment volatility, optimizing returns.
Unlike passive managers who celebrate achieving established benchmarks or objectives, active managers focus on surpassing the benchmark regarding gains and returns.
Before hiring active management in Dallas, it is essential to understand what it entails to know whether it is a good approach for your investment.
Pros
Higher returns potential
Active managers focus on identifying undervalued stocks to invest in, which results in higher returns. They also identify overvalued stocks to avoid because those could result in underperformance.
Adjustment to market conditions
Active managers can identify and quickly respond to market changes like political events, economic indicator shifts, or industry-specific news. They do that by adjusting their strategies to accommodate the changes.
Diversification opportunities
Active management allows people to invest in various industries, geographies, and sectors. Active managers can also invest in organizations with varying market capitalizations like large, mid, and small-cap stocks.
Risk mitigation
While an investment’s success or failure highly depends on a manager’s skills to identify lucrative investment opportunities, it also relies on their ability to identify and mitigate risks.
Active managers develop and utilize several risk-assessment metrics and tools to identify risks and the best ways to avoid them. Major risks include credit, equity market, liquidity, and interest rate risks.
Cons
Challenges in always outperforming the market
Active managers might have difficulty identifying undervalued stocks, avoiding overvalued stocks, or accurately predicting market trends. They might also be affected by market volatility, resulting in underperformance in turbulent times.
High fees
Because of the complexity of their services, active managers tend to have high fees. Sometimes, these fees eat into investment returns.
Westwood Wealth Management is dedicated to providing industry-leading active management in Dallas to individuals and businesses for better financial performance. Browse their service offerings and book a consultation at Westwoodgroup.com.
