What Active Investing Should Really Mean For Your Portfolio
What Active Investing Should Really Mean For Your Portfolio
What Active Investing
Should Really Mean
For Your Portfolio
Published: October 30, 2024
Published: October 30, 2024
Published: October 30, 2024
Reading Time: 7 Min
Reading Time: 7 Min
Reading Time: 7 Min
Written by: The Zoe Team
Written by: The Zoe Team
Written by: The Zoe Team
Most investors consider “active” investing to be stock picking with the goal to outperform the broader market. However, an active investing framework can actually provide a rigorous, objective, and holistic approach to investing.
Most investors consider “active” investing to be stock picking with the goal to outperform the broader market. However, an active investing framework can actually provide a rigorous, objective, and holistic approach to investing.
According to Gallup (2019), 61% of Americans invest in order to achieve their goals. Be it retirement, travel, starting a business, supporting others, or simply earning higher returns – the ultimate goal of investing is to make more money or preserve its value. Nevertheless, achieving that goal is where it gets a little tricky.
According to Gallup (2019), 61% of Americans invest in order to achieve their goals. Be it retirement, travel, starting a business, supporting others, or simply earning higher returns – the ultimate goal of investing is to make more money or preserve its value. Nevertheless, achieving that goal is where it gets a little tricky.
Active vs. Passive Investing
Active and passive investing are two distinct strategies, each with different goals and outcomes. It’s crucial to understand which approach aligns with your unique needs.
Active vs. Passive Investing
Active and passive investing are two distinct strategies, each with different goals and outcomes. It’s crucial to understand which approach aligns with your unique needs.
What Does Active Actually Mean?
Most investors consider “active” investing to be stock picking with the goal to outperform the broader market (i.e. S&P 500 Index). The investor (or the financial advisor on behalf of the investor) buys or sells individual stocks based on specific factors, hoping to pick more winners than losers.
In contrast, “passive” investing employs a buy-and-hold strategy aimed at generating long-term market returns by investing in benchmark indexes, accepting benchmark returns while reducing trading costs and improving tax efficiency.
Historically, there has been a lot of debate on the “active” vs. “passive” investing topic and whether there’s an actual value added to pursuing active investing.
What Does Active Actually Mean?
Most investors consider “active” investing to be stock picking with the goal to outperform the broader market (i.e. S&P 500 Index). The investor (or the financial advisor on behalf of the investor) buys or sells individual stocks based on specific factors, hoping to pick more winners than losers.
In contrast, “passive” investing employs a buy-and-hold strategy aimed at generating long-term market returns by investing in benchmark indexes, accepting benchmark returns while reducing trading costs and improving tax efficiency.
Historically, there has been a lot of debate on the “active” vs. “passive” investing topic and whether there’s an actual value added to pursuing active investing.
The Evolution of Investing
Investment methods have evolved significantly over time. Before World War II, individual investors mostly owned individual stocks. In the 1950s, mutual funds gained traction, democratizing investing by lowering costs. The introduction of 401(k) plans in 1974 through the Employee Retirement Income Security Act (ERISA) marked a pivotal moment, further boosting mutual fund adoption during the bull markets of the 1980s and 1990s.
Exchange-Traded Funds (ETFs) were introduced in the 1990s, offering a more cost-effective and tax-efficient way to invest while trading like regular stocks. ETFs not only broadened access to domestic stocks but also provided exposure to international markets, commodities, and currencies that were previously hard for individual investors to access. According to a report from the Investment Company Institute, after the ‘08 Global Financial Crisis, ETFs gained further adoption and grew from $531B to approximately $5.45T from 2008 to 2020.
With the backdrop of commission-free stock trading, a new way of owning stocks has emerged: Direct Indexing. Direct Indexing allows for personalized and customized portfolios without having to “pool” different people’s money. In other words, it is the equivalent of building your own unique ETF.
This evolution has also transformed the role of financial advisors.
The Evolution of Investing
Investment methods have evolved significantly over time. Before World War II, individual investors mostly owned individual stocks. In the 1950s, mutual funds gained traction, democratizing investing by lowering costs. The introduction of 401(k) plans in 1974 through the Employee Retirement Income Security Act (ERISA) marked a pivotal moment, further boosting mutual fund adoption during the bull markets of the 1980s and 1990s.
Exchange-Traded Funds (ETFs) were introduced in the 1990s, offering a more cost-effective and tax-efficient way to invest while trading like regular stocks. ETFs not only broadened access to domestic stocks but also provided exposure to international markets, commodities, and currencies that were previously hard for individual investors to access. According to a report from the Investment Company Institute, after the ‘08 Global Financial Crisis, ETFs gained further adoption and grew from $531B to approximately $5.45T from 2008 to 2020.
With the backdrop of commission-free stock trading, a new way of owning stocks has emerged: Direct Indexing. Direct Indexing allows for personalized and customized portfolios without having to “pool” different people’s money. In other words, it is the equivalent of building your own unique ETF.
This evolution has also transformed the role of financial advisors.
Understanding Wealth Creation Today
An active framework can offer a rigorous, objective, and holistic approach to investing.
Understanding Wealth Creation Today
An active framework can offer a rigorous, objective, and holistic approach to investing.
There are several investment frameworks that can help you achieve your financial goals. The key is to have a framework and the discipline to stick to it.
So how are advisors working with an “active” framework? Most of the action will happen behind the scenes. Here is an example of the activities an advisor would do:
Create a list of investable Asset Classes.
Develop a Strategic Asset Allocation using historical and forward-looking expectations of the asset classes.
Select appropriate Asset Allocation consistent with your preferences (risk, goals, time horizon).
Choose the investment styles (passive/hybrid/active) along with the investment vehicles (some of the widely used ones are below):
ETFs
Mutual Funds
Individual Stocks
Follow a disciplined and tolerance-based approach to rebalance accounts & minimize drift between you and your target portfolio.
Regularly monitor portfolios to ensure you stay on track to achieve your goals.
Schedule regular check-ins with your advisor to assess any changes in your situation that may require adjustments to your goals and strategy.
There are several investment frameworks that can help you achieve your financial goals. The key is to have a framework and the discipline to stick to it.
So how are advisors working with an “active” framework? Most of the action will happen behind the scenes. Here is an example of the activities an advisor would do:
Create a list of investable Asset Classes.
Develop a Strategic Asset Allocation using historical and forward-looking expectations of the asset classes.
Select appropriate Asset Allocation consistent with your preferences (risk, goals, time horizon).
Choose the investment styles (passive/hybrid/active) along with the investment vehicles (some of the widely used ones are below):
ETFs
Mutual Funds
Individual Stocks
Follow a disciplined and tolerance-based approach to rebalance accounts & minimize drift between you and your target portfolio.
Regularly monitor portfolios to ensure you stay on track to achieve your goals.
Schedule regular check-ins with your advisor to assess any changes in your situation that may require adjustments to your goals and strategy.
6 Ways the “Active Framework” can Provide Value
Hint… it’s not about beating the market:
A goal-based approach leads to higher client engagement and a greater likelihood of sticking to the plan in fluctuating markets.
Selecting the right asset allocation could have a huge impact on overall progress for your goals… According to research,
from Brinson, Hood, and Beebower (1986), 90%+ of portfolio returns could be attributed to asset allocation.
The disciplined process of choosing/developing the investment strategy helps maximize the risk-reward potential while minimizing the overall costs.
Regular portfolio rebalancing helps minimize portfolio drift (the difference between the current and target portfolio) while keeping emotions out of the day-to-day portfolio management.
Advisors should keep you motivated and accountable for staying on track, especially during market swings.
In short, life is fluid and ever-changing… And your financial plan should be too!
6 Ways the “Active Framework” can Provide Value
Hint… it’s not about beating the market:
A goal-based approach leads to higher client engagement and a greater likelihood of sticking to the plan in fluctuating markets.
Selecting the right asset allocation could have a huge impact on overall progress for your goals… According to research,
from Brinson, Hood, and Beebower (1986), 90%+ of portfolio returns could be attributed to asset allocation.
The disciplined process of choosing/developing the investment strategy helps maximize the risk-reward potential while minimizing the overall costs.
Regular portfolio rebalancing helps minimize portfolio drift (the difference between the current and target portfolio) while keeping emotions out of the day-to-day portfolio management.
Advisors should keep you motivated and accountable for staying on track, especially during market swings.
In short, life is fluid and ever-changing… And your financial plan should be too!
The Bottom Line
Understanding the tax landscape post-reform can feel overwhelming at times. However, by thoughtfully navigating these changes, you can take advantage of charitable contributions in a way that best fits your financial situation. Whether you’re donating appreciated stocks, using IRA distributions, or exploring donor-advised funds, there are plenty of ways to optimize your giving while managing your tax situation. While tax reform may have shifted the rules, with careful planning, you can continue to support causes that matter to you while managing your taxes effectively.
The Bottom Line
Understanding the tax landscape post-reform can feel overwhelming at times. However, by thoughtfully navigating these changes, you can take advantage of charitable contributions in a way that best fits your financial situation. Whether you’re donating appreciated stocks, using IRA distributions, or exploring donor-advised funds, there are plenty of ways to optimize your giving while managing your tax situation. While tax reform may have shifted the rules, with careful planning, you can continue to support causes that matter to you while managing your taxes effectively.
Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.
Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.
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Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.
Investment advisory services are provided by Zoe Financial, Inc. (Zoe Financial), an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Learn more about Zoe Financial on the SEC’s Investment Adviser Public Disclosure website. Brokerage services are provided by Zoe Securities LLC and Apex Clearing Corporation, members of the Financial Industry Regulatory Authority Inc. (FINRA) and Securities Investor Protection Corporation (SIPC). Learn more about Zoe Securities and Apex on FINRA’s BrokerCheck website.
The information in the visuals above is for illustrative purposes only and does not represent an actual user's account, balance, or return. Zoe Financial does not provide tax or legal advice.
Copyright © 2025 Zoe Financial, Inc. | All rights reserved
Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.
Investment advisory services are provided by Zoe Financial, Inc. (Zoe Financial), an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Learn more about Zoe Financial on the SEC’s Investment Adviser Public Disclosure website. Brokerage services are provided by Zoe Securities LLC and Apex Clearing Corporation, members of the Financial Industry Regulatory Authority Inc. (FINRA) and Securities Investor Protection Corporation (SIPC). Learn more about Zoe Securities and Apex on FINRA’s BrokerCheck website.
The information in the visuals above is for illustrative purposes only and does not represent an actual user's account, balance, or return. Zoe Financial does not provide tax or legal advice.
Copyright © 2025 Zoe Financial, Inc. | All rights reserved
Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.
Investment advisory services are provided by Zoe Financial, Inc. (Zoe Financial), an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Learn more about Zoe Financial on the SEC’s Investment Adviser Public Disclosure website. Brokerage services are provided by Zoe Securities LLC and Apex Clearing Corporation, members of the Financial Industry Regulatory Authority Inc. (FINRA) and Securities Investor Protection Corporation (SIPC). Learn more about Zoe Securities and Apex on FINRA’s BrokerCheck website.
The information in the visuals above is for illustrative purposes only and does not represent an actual user's account, balance, or return. Zoe Financial does not provide tax or legal advice.
Copyright © 2025 Zoe Financial, Inc. | All rights reserved