Active vs Passive Investing vs Crafting Your Portfolio with EsqWealth

This article is reprinted with permission from Esq. Wealth Management, Inc.

In the dynamic landscape of wealth management, investors are confronted not only with the active versus passive debate but also with the decision of whether to embark on a do-it-yourself journey or entrust their financial well-being to a trusted fiduciary like EsqWealth. At EsqWealth, we understand the nuances of this debate and recognize that each client’s financial journey is unique. While some may opt for saving on fees while taking greater risks with the hands-on approach of DIY investing, others find comfort in the expertise and guidance provided by a fiduciary advisor. In this article, we navigate through the complexities of these decisions to shed light on optimal wealth management solutions tailored to individual needs.

What is Active Investing?

Active investors take a hands-on approach to buying and selling to try to outperform a particular benchmark, like the S&P 500 Index. Alternatively, some active investors structure a portfolio to meet certain goals such as a lower BETA, a higher ALPHA, or only companies that meet certain criteria such as companies that have and look to increase their dividends every year.They follow companies closely and trade assets to capitalize on short-term price fluctuations. You can do your own active investing, but because this approach requires a high level of market analysis and expertise, it isn’t recommended for novice investors.

Instead, investors may choose to purchase actively managed funds. Fund managers have experience with frequent trading and time to devote to research. They have access to a wide range of investment data as well as a knowledge of broader market and economic trends. With this information close at hand, they closely monitor the market and determine the best time to buy and sell stocks based on their research and expertise to maximize return.

Investors may also choose to work directly with a portfolio manager or financial advisor who can help manage their portfolio or even build a custom index through direct indexing. Instead of owning shares of a fund, direct indexing strategies allow investors to own the companies that comprise an index directly, providing greater flexibility in how they are bought, sold, and managed for tax efficiency.

What is Passive Investing?

Passive investing requires a long-term mindset. This strategy focuses on buying assets regardless of the market’s daily fluctuations and holding them for a longer period. By holding stocks for the long haul and avoiding reacting to ups and downs in the market, you hope to benefit from an overall increase in market prices over time.

Passive investing typically involves buying shares of an exchange-traded fund (ETF) or index fund designed to replicate a market index while minimizing buying and selling. This type of hands-off approach doesn’t require the kind of daily attention and meticulous research active investing does, and as a result, also tends to come with lower costs, potentially allowing investors to hang on to more of their returns.

EsqWealth’s Approach

At EsqWealth, we understand that navigating the complexities of wealth management requires a tailored approach that aligns with each client’s unique financial position, goals, time horizon, and risk tolerance. While some investors prefer the dynamic nature of active management, others find solace in the stability of passive strategies. Recognizing this diversity, we offer a comprehensive range of solutions designed to cater to individual preferences.

EsqWealth works with Johnson Dunn Capital Advisors to implement an excellent strategy for portfolio management for some of its clients. Keith Dunn is the Managing Director of Johnson Dunn Capital Advisors and brings more than 40 years of experience to assist in developing the right portfolio for each client. Johnson Dunn Capital Advisors actively manages the following four portfolios:

  1. Concentrated Dividend Growth. Dividend stocks have historically outperformed the S&P 500 with less volatility due to their dual sources of return: dividend payments and capital appreciation. This portfolio aims to invest in 25-40 companies that have consistently raised their dividends and are expected to continue doing so in the future. Certain companies or sectors may be weighted based on various factors.
  2. Dividend and Growth. This portfolio also focuses on dividend-paying companies but offers greater diversification. It invests in 70-80 companies, providing exposure to a cross-section of the United States economy. Additionally, some large companies in this portfolio provide exposure to the global economy. It encompasses both growth and value stocks, with consideration given to economic cycles and emerging trends.
  3. Quantitative. This portfolio eliminates emotional biases from investing by employing a proprietary quantitative analysis model. The model narrows down approximately 2,500 companies based on industry, valuation, and mathematical measures. The portfolio is regularly rebalanced in the short term, potentially generating short-term ordinary income due to the rebalancing process.
  4. Fixed income. This portfolio caters to clients who wish to avoid stock market volatility, particularly those with short-term capital needs. It primarily invests in assets and securities that generate consistent cash flows, typically in the form of fixed interest or dividends. Common fixed-income products within this portfolio include money market accounts, treasuries, and corporate bonds.

These portfolios may be implemented in varying percentages based on each client’s unique financial plan. Additionally, EsqWealth collaborates with BlackRock, one of the world’s leading providers of investment, advisory, and risk management solutions. Over the past 30 years, BlackRock has evolved from an eight-person start-up to a global company that’s trusted to manage trillions of dollars. Pursuant to its agreement with BlackRock, EsqWealth utilizes BlackRock’s investment guidance, a disciplined investment approach, and customizable models to help meet each client’s unique goals.

Conclusion

Through our collaboration with Johnson Dunn Capital Advisors and access to BlackRock portfolios, we offer a diverse range of investment strategies, each meticulously calibrated to individual goals and risk profiles. From the stability of fixed income to the agility of quantitative analysis, our offerings cater to diverse investor preferences, ensuring resilience in the face of market volatility. As we continue to navigate the complexities of today’s markets, EsqWealth remains steadfast in our commitment to crafting portfolios that empower clients to achieve enduring financial success.

The information above is not intended to and should not be construed as specific advice or recommendations for any individual. The opinions voiced are for general information only and are not intended to provide, and should not be relied on for tax, legal, or accounting advice. To discuss specific recommendations for any unique situation, please feel free to contact us.

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