How to Invest passively

When most people think of an investment fund manager, they imagine a city professional staring at a screen of numbers yelling "buy" or "sell". It involves a human element of decision making; someone who is taking strategic decisions about whether to hold the shares of a certain company within the fund, trying to constantly achieve the optimum mix of shares and other assets to give their investors top returns. The human element in markets means that no fund manager will outperform year in year out. And naturally, this extra involvement doesn't come for free, so actively managed funds are generally more expensive than their passive equivalent and as much research shows they do not  regularly outperforming, the markets.

At Enable we believe Passive investments work best for wealth management; you might as well just track an index at a much lower cost, safe in the knowledge that whilst you probably won't outperform the market, your investments are less likely to significantly underperform the market, giving you peace of mind that your portfolio performance will always be there or thereabouts. Choosing a passive fund usually starts with deciding which index to track, such as the FTSE 100.



Needless to say, there are different types of passive funds. The funds which will most closely resemble the index they are tracking are known as full replication; they hold the same proportion of every share that makes up the index they are tracking. This is a simple but effective way of following an index. However, for smaller funds it can be so expensive to buy so many different shares that the charges would simply cancel out the lower cost benefit of a passive fund. As a result, these smaller funds will often buy a selection of shares to try and simulate the market, but this of course involves decision making about which shares to buy; again introducing the human element and possibility of underperformance compared to the market. The true benefits of passive investment for any portfolio are to try and achieve accurate index tracking with very low charges something Enables IFA’s  of Bishop’s Stortford will always be trying to do for you.


Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE