Ask The Expert - Passive Wealth Management In My 40s? Really?
When it comes to managing your money, we wanted to know, what are some advantages of passive wealth management.
For this article, we reached out to James Gauthier of Just Wealth to help our clients learn more about finances.
What are 3 reasons someone in their 40s would consider a passive asset management solution?
First, let us quickly define passive wealth management. Passive wealth management is when you invest your capital into a basket of companies or INDICES like the TSX 60 and hold on to that investment without trying to trade the ups and downs of the stock market.
Here is what James had to say...
The argument for using a passive investment strategy compared to an active strategy applies to all ages, not just someone in their 40’s. But, someone in their 40’s might just be a bit more open to considering a passive strategy given that they may be a bit older, wiser and be looking to simplify decision-making activities in their lives.
The number one reason an investor should consider a passive investment strategy is that it is extremely cost-effective.
Investment fees can come in a variety of forms, but the simple comparison between the fees paid for passive investment management and active investment management demonstrates a very clear advantage for passive options. It is expensive to hire a group of intelligent investment professionals whose job is to consistently outsmart everyone else in the markets, and investors are on the hook to pay for this whether the strategy is successful or not.
Virtually all academic evidence supports the fact that nobody can consistently be smarter than “the market”. Passive investment options are not free, and neither is quality investment advice and guidance from your financial advisor, but by adopting a passive investment strategy, you can reduce your annual investment expenses anywhere from 30% to 90%!
Compound that over an investing lifetime, and you can increase your wealth significantly with one simple decision.
Lower Fees - Stronger Growth
A second important reason to adopt a passive investment strategy is that it instills discipline in investing.
Whether you are selecting your own investments, or delegating that to a professional, eliminating or simplifying the decision of “what” to buy saves you a tremendous amount of time (and stress) and helps you avoid making mistakes.
Creating a robust financial plan, sticking to the plan, and periodically checking up on the progress of your plan is a far more sound way to build wealth than trying to discover the next Amazon.
Lastly, the supply of passive investing products has exploded over the past few years, so there is now something available for every type of investor.
The overwhelming evidence that passive investing generates greater wealth than comparable active investment strategies is catching on, so we have seen the emergence of many new companies driving costs down even further and improving innovation to cater to a wider range of investor preferences. Looking back just ten years ago, there were only 49 Exchange Traded Funds (ETFs – widely considered to be the primary passive investment product option) available in Canada. Today that number is over 650.
So regardless of any particular investment preference or need, it is likely that there are passive investment options available to you to help you achieve your financial objectives.
Four Point Financial
We want to thank James for his insight to passive investment. Understanding the landscape of wealth management is our key to helping clients.
Stay tuned for more articles, on wealth, business, family, taxes and more as we continue our series called ASK THE EXPERT.
Develop Your Wealth Strategy
Contact us at Four Point Financial for a no obligation discussion on your Wealth Strategy. Family & Business Wealth Specialists in the GTA since 2007.