3 Approaches to Investing
Differences across a variety of dimensions must be considered when deciding which strategy, or combination of strategies, may be right for you.
How do active, passive, and smart beta investing differ?
Active, passive, and smart beta are different investing styles, and each has its own strengths and weaknesses. You may want to employ one, two, or even all three to help you reach your financial goals.
- Active, passive, and smart beta are strategies for building a portfolio.
- Active investing involves a professional manager selecting individual stocks, bonds, cash, and other investments in an effort to do better than the market or to match the market with less risk or higher income.
- The primary goal of passive investing is to track the performance of a particular index – not to “beat the market”.
- Although having characteristics similar to active and passive strategies, smart beta strategies are designed to compensate for perceived flaws in classic indexing strategies.
- The goal of smart beta strategies is to deliver better risk-adjusted returns with lower risk or increase diversification I a cost-effective manner.
All investing involves risk including the possible loss of principal. There is no assurance that any strategy will meet its investment objective or that the use of smart beta strategies will produce excess returns even if such strategies have done so in the past.
Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors, and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.
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