By: Megan Makuck, Fall 2017 IAC Student Intern
There once was an actively managed portfolio who bragged about how fast he could grow. Tired of hearing him boast, Slow and Steady, the passively managed portfolio, challenged him to a race. All the investments in the market gathered to watch.
The actively managed portfolio ran down the road for a while, investing in all the stocks that were expected to have quick growth, attempting to sell them shortly thereafter for a quick profit, then repeating the process. Eventually, he paused to rest. While he rested, his stocks were so volatile that some of them lost money, while only a few others continued to grow.
He looked back at Slow and Steady and cried out, “How do you expect to win this race when you are walking along at your slow, slow pace?” Slow and Steady had invested in a diverse portfolio and waited for his investments to grow slowly overtime.
The actively managed portfolio stretched himself out alongside the road and fell asleep, thinking, “There is plenty of time to relax.”
The passively managed portfolio grew and grew. He never, ever stopped until he came to the finish line.
The investments who were watching cheered so loudly for the passively managed portfolio, they woke up the actively managed portfolio.
The actively managed account stretched and yawned and began to search for quick growth stocks again, but it was too late. The passively managed portfolio was over the line.
After that, the actively managed portfolio always reminded himself, “Don’t brag about your lightning pace, for Slow and Steady won the race!”
Moral: Portfolios that track with the market may perform better than the actively managed ones, and may involve less fees. To learn about the differences between actively and passively managed portfolios, visit FINRA.