What To Consider When Investing Your (Hard-Earned) Money A debate regarding active versus passive investing can quickly become heated, but the issue is far more nuanced than it might seem at first. It's not as simple as choosing one over the other. Successful portfolios are balanced.

Vital Stats

• Player: Michael Sassoon
• Company: Sasfin
• Position: Head of Wealth and Capital, Executive Director
• Visit: www.sasfin.com

It isn't hard to see the attraction of a passive investment strategy: Set it, forget it, and save a ton of money on fees. But it's not as simple as that. Sure, passive investing has its upsides, but it's not quite the can't-lose strategy it's sometimes made out to be. There are still risks. And there are still fees.

Most importantly, though, it can oversimplify the process of wealth management, ignoring the needs, wants and personality of the person involved.

"A person's relationship with his or her money is a very personal thing," says Sasfin Head of Wealth and Capital, Michael Sassoon.

"Successfully managing someone's investments means understanding what their overall financial situation is, and what their investment goals are.

"You're often acting like a psychologist, encouraging them to spend less and save more. It's also about helping people to manage risk and finding a solution that suits their risk appetite by appropriately blending different asset classes."

Active and passive

Sasfin believes in a bespoke approach that suits the individual. So, does that mean that the company is against passive management? Surprisingly, the answer is no. According to Michael, a good argument can be made for blending the two.

"Passive investment can be useful as part of a comprehensive investment strategy, particularly if you're trying to get some exposure to the market, but it is merely one tool in the toolbox. Any passive investment has to be looked at within the context of broader portfolio management decision-making.

"Fund managers at Sasfin can combine active and passive investments to manage a balanced portfolio for asset allocation and single-asset classes. ETFs (exchanged-traded funds) can be a cost-effective way to get exposure to specific asset classes and their respective traits or styles i.e aggressive, or conservative," says Michael.

"So, it's not as simple as choosing between active and passive. The whole landscape has evolved to a point where passive investing can be quite hard to define. Passive investing comes at a cost that needs to be evaluated, and all forms of passive investment require a component of active management initially, and at somewhat regular intervals thereafter."

Fees must fall

In fact, the issue isn't really about active versus passive. The issue is fees. "The big problem a lot of people have with active funds are the fees involved, and that is where some sort of change needs to take place.

"The industry has a lot of layers — lots of brokers, advisors, and so on. There are a lot of mouths to feed, which is why active management can be expensive. But it needn't be. Active management can be offered in a more cost-effective way by appointing a portfolio manager to construct a direct share portfolio — thereby getting rid of some of the layers and complexities."

How can this be done, though? How can you make active investment more affordable? The answer is simple: Technology.

Rise of the robo-advisor

One would expect a company like Sasfin to bemoan the recent rise of automated investment and robo-advisors. Instead, though, the company has invested in a Silicon Valley-based start-up that is in the business of creating robo-advisors.

"Our industry is ripe for disruption," says Michael. "Changes are definitely coming. But we don't view it as a bad thing. We actually believe that it can help us in making active management more accessible to more people. We believe there's tremendous value in sitting across a table from a client and helping him or her map out their financial future, and technology can help us reach more people.

"There are elements of the process, regardless of whether you're looking at active or passive, that can be digitised. Technology can help us streamline and simplify active asset management, and that'll make it more accessible," says Michael.

"It's not about active or passive — it's about a comprehensive strategy that works for you."

Take note

Sound investment isn't as simple as choosing between active and passive. Any investment should be looked at within the context of a larger portfolio.