The human brain often plays tricks on itself when money is involved, which is why so many people are prone to making illogical decisions when it comes to their investments.
We’ve written about the psychological traps that commonly affect investors before, and yet we still regularly see individuals ignoring the research and failing to diversify their portfolios.
One area where this is particularly obvious is ‘active’ and ‘passive’ investing. These operate at opposite ends of the stock market spectrum; the former relies on fund managers making all the decisions, while the latter uses strategies that simply track the markets.
Emily Roostan, Director at Affinity Capital, said many investors seem to have portfolios that concentrate heavily on either active or passive methods but rarely have an optimal balance of both.
If you have limited options, why would you discount one end of the spectrum in favour of the other? Or worse, cut out investment areas altogether instead of benefiting from potential opportunities?” she says.
Both active and passive strategies can have a place in portfolios, provided investors are well informed of the pros and cons of each. Ultimately, you need to do more than just follow the crowd if you want the best returns.
We believe that you shouldn’t settle for such polarised options when picking your investment approach. There are plenty of ways to build a diverse portfolio without putting all your eggs in one basket.
Structured investments, for example, occupy a space between active and passive strategies, and they can provide the best of both worlds. Structures can be tailored to meet your specific portfolio objectives, while offering predefined protection limits and returns.
Despite these benefits, structures are dramatically underutilised among investors, as people continue to focus on more popular alternatives such as ETFs.
“The strongest portfolios that we’ve seen have accessed all the options available, using the strengths of each to complement each other,” Emily states.
“Structures have had extraordinary success when used within balanced portfolios and can enhance performance when working with an overall investment strategy.”
To achieve the best outcomes on your investments, it’s important to educate yourself on the different options available and discuss your needs with experts who can give you the necessary guidance.