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Revisit Your Approach to Income

·3 min read

Income management can be complicated, especially in the face of unexpected challenges like the past year-and-a-half of the worldwide COVID-19 pandemic. But while the early months of the Coronavirus pandemic left many feeling uncertain about their savings and focusing on the cost of living in the moment, as the economy begins to turn the corner, many folks are once again thinking about investing in their futures. Though the combination of a complex income landscape and low rates have led many investors to settle for reduced performance, as an advisor, you’re always looking for fresh ways to improve your client’s portfolio. And for some, an active management strategy could be the way to move forward.

In partnership with Franklin Templeton, we present a few reasons why you may want to revisit your approach to investing through an active management strategy.

Active vs. passive

Passive portfolio management is, just as the name implies, a fairly hands-off investment strategy. It mimics the holdings of a particular stock or bond index and tries to match its performance. While arguably reliable, the one-size-fits-all approach doesn’t seek ways to innovate or improve your client’s portfolio. An actively managed strategy, meanwhile, is interested in outperforming those established indexes. A fund manager will try to do this by frequently buying and selling stocks or other securities for your Mutual Funds or ETFs throughout the trading day. The key takeaway here is that you’re actively engaged with the portfolio, with the advising team working in real-time to analyze market trends and look for ways to increase the value of your client’s investment.

Risk and reward

While there’s hope for economic stability on the horizon, we’re still admittedly in financially precarious times. Between the rate of inflation, low interest rates, the uncertain path of economic recovery post COVID, and the constant fluctuation of the stock market, investors may naturally want to go conservative with their strategy. That is fair enough, but the truth is that all investments involve risk. A low-risk, passively managed venture may involve minimal principal investment, but there can also be a downside to having your client play it too safe. Consider, for instance, that a “safe” indexed fund could be weighted in such a conservative way that it ultimately becomes a slow-building, low-yield option for investors. There may not be much in terms of their overall return.

An actively managed, bespoke ETF will cost investors more off the top—as they naturally include additional management fees. There’s also a lot of troubleshooting involved, with managers and advisors carefully adjusting to market conditions on the fly—and tweaking the template in the face of a constantly evolving market isn’t a precise science. Though there is no such thing as guaranteed performance, these added risks do bring the potential for your client’s investment to outperform more traditional index fund-geared management strategies at a quicker clip.

Speak with an active management expert

Market volatility may have investors unsure about their next financial step, but it never hurts to reach out to a professional for some sound financial advice. And in that respect, Franklin Templeton’s team of strategists has been delivering income solutions to investors around the globe for over 70 years. Connecting with one of their experts, you can review your client’s assets and build out a unique plan that considers their income challenges, investment expectations, risk-tolerance, and whether an active strategy can be the right fit.

You can find out more about how Franklin Templeton are actively solving income challenges here.

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