Fund management costs are currently the investment headline of the day, with many experts extolling the virtues of low cost passive fund management over active managers.
While there are arguments in favour of this, individuals should make sure they have a balanced view before deciding how their investments should be managed.
Active or managed funds will typically charge 1.67% a year, against passive fund charges which can go below 0.1%.
Research by consumer group Which? reckoned that fewer than one in four active fund managers outperformed the FTSE All-Share index over the past decade.
Conversely, research agency S&P Dow Jones Indices said recently that nearly 90% of stock pickers in UK equity funds delivered higher returns than the market last year.
How can both be true?
In volatile markets or in those which are less mature active managers tend to earn their corn, while in rising markets low-cost index tracking funds can benefit.
For those pursuing the passive strategy, one only needs to ask how they performed during seminal market crashes such as the credit crunch in 2008.
Controlling losses during a market downturn and identifying investment opportunities are the keys to success.
A plan which provides overall context to one’s wealth and financial position can inform and educate decisions around investment risk.
Investors and their advisers should agree the most sensible strategy without prejudice to any particular method of management, be it passive, active or a combination.
Bryan Innes is an executive partner with wealth adviser Towry