Broker Check

The Art and Value of Active Investment Management

Written by Steve Ciaccio, MBA, CPA, CFP®

Active investment management is much more than simply choosing a set of investments and periodically rebalancing them. Although active management can sometimes have higher risk and expense than a buy and hold strategy, if handled properly, you could have the potential to increase your returns by benefiting from both positive and negative economic changes.

Here are a couple of hypothetical examples that are not related to any particular investment. A rising U.S. Dollar can make some imported goods less expensive for people in the United States. A rising U.S. Dollar can also have the same effect on some foreign investments and make them less valuable in terms of U.S. Dollars. We cannot time the market. However, when I believe that the dollar is going to rise against other currencies, based on client suitability, I will consider discussing the option to sell some of their foreign investments. On the other hand, when I believe that the U.S. Dollar will drop in value against other currencies, then I might discuss the option of buying select foreign investments. Of course, the underlying fundamentals and outlook of the investment should always be considered as well.

Bond prices can change and are affected by market risk, interest rates, availability, and other factors. Rising interest rates typically cause the value of many types of bonds to drop. Some types of bonds can be affected more significantly than others. When I expect interest rates to rise, based on the client’s suitability, I might discuss the option of selling some bond holdings. When I believe that rates are done rising, I might discuss buying bond holdings so they could potentially receive the higher interest rates. If interest rates decrease, clients who hold bonds have the option to keep the bonds and continue to receive the high interest rate that they locked in. They could also potentially benefit from the increase in bond prices that sometimes come with decreasing rates. Of course, receiving interest payments is always dependent on the credit quality of the borrower.

There are many other economic components that can provide opportunities to actively manage your investments. Changing oil prices, the price of building materials, and government spending are just a few of them. Sometimes these changes can be foreseen, thus, the opportunities arise.

The value of most investments are affected by many factors. Asset allocation and actively managing your investments do not guaranty gains, and there is always risk of loss. Also, there are some circumstances that can warrant a buy and hold investment strategy. The effect of taxation should always be considered as well. However, by staying informed about the economic environment and by tactically allocating your investments in anticipation of trends or changes, you have the opportunity to produce higher results when handled properly.

All the best!

Steve Ciaccio, CERTIFIED FINANIAL PLANNER™ is the founder of Ciaccio Wealth Management, located at 232 South Batavia Avenue, Batavia. He can be reached at 630-454-4599. The opinions voiced in this article are for general information only and are not intended to provide specific investment or tax advice or recommendations for any individual. International investing involves significant risks and may not be suitable for all investors.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.

Copyright Steve Ciaccio 2015

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