T. Rowe Price Personal Investor - ActivePlus Portfolios FAQ (2024)

FAQs

What is the ActivePlus portfolio methodology? ›

Rowe Price ActivePlus Portfolios program were developed based on the principle of broad diversification across asset/sub-asset classes, sectors, and regions. Each of the 10 portfolios is diversified across asset/sub- asset classes and aims to maximize returns for a given level of risk.

Active management requires frequent buying and selling in an effort to outperform a specific benchmark or index. Passive management replicates a specific benchmark or index in order to match its performance. Active management portfolios strive for superior returns but take greater risks and entail larger fees.

In general terms, active management refers to mutual funds that are actively managed by a portfolio manager. Passive management typically refers to funds that simply mirror the composition and performance of a specific index, such as the Standard & Poor's 500^® Index.

It is not an exact science, but the number of holdings will depend on your experience and size of your portfolio. Stevenson says: 'For an experienced investor, with a large portfolio of more than £100,000, anywhere between 10 and 15 funds should be more than enough to provide adequate diversification.

For example, active portfolio managers, whose benchmark is the Standard and Poor's 500 index, will attempt to generate returns that outperform the index. They will do this by over-weighting certain industries or securities – essentially allocating more to specific sectors than the index does.

Passive investing tends to perform better

Despite the fact that they put a lot of effort into it, the vast majority of of active fund managers underperform the market benchmark they're trying to beat. Even when actively managed funds do experience a period of outperformance, it doesn't tend to last long.

Disadvantages of Active Management

Actively managed funds generally have higher fees and are less tax-efficient than passively managed funds. The investor is paying for the sustained efforts of investment advisers who specialize in active investment, and for the potential for higher returns than the markets as a whole.

The potential benefits of an active investment strategy are: A chance at bigger rewards. An actively managed fund or portfolio has the potential to beat index returns. A quality investment strategy can be an important factor in capturing greater risk-adjusted returns relative to the market.

“Active” Advantages

Flexibility – because active managers, unlike passive ones, are not required to hold specific stocks or bonds. Hedging – the ability to use short sales, put options, and other strategies to insure against losses.

Active management fees can range from 0.10% to over 2% of assets under management (AUM). Active money managers may also charge a performance fee between 10% and 20% of the profit they generate. Minimum investment amounts: Active funds often set minimum investment thresholds for prospective investors.

Do active investors beat the market? ›

The average investor may not have a very good chance of beating the market. Regular investors may be able to achieve better risk-adjusted returns by focusing on losing less. Consider using low-cost platforms, creating a portfolio with a purpose, and beware of headline risk.

Active Investing Disadvantages

All those fees over decades of investing can kill returns. Active risk: Active managers are free to buy any investment they think would bring high returns, which is great when the analysts are right but terrible when they're wrong.

The 4% rule is easy to follow. In the first year of retirement, you can withdraw up to 4% of your portfolio's value. If you have $1 million saved for retirement, for example, you could spend $40,000 in the first year of retirement following the 4% rule.

A portfolio of 10 or more stocks, particularly those across various sectors or industries, is much less risky than a portfolio of only two stocks.

Typically, financial advisors allocate no less than 5% to cash, and often an amount closer to 10% or even 15% or 20%.

An active portfolio management strategy involves buying and selling of investments with an aim to outperform a broad market index. Generally, investors who adopt this approach enlist the help of a professional portfolio manager, who uses experience and expertise to strategically choose the options to invest in.

The PfM² Methodology describes portfolio management activities and organises them in four processes: Portfolio Framework Definition, Portfolio Composition, Portfolio Realisation, Portfolio Stakeholder Engagement & Communication.

For portfolio-based organizations, portfolio governance management follows four processes : developing a portfolio management plan, defining a portfolio, optimizing a portfolio, authorizing a portfolio and providing portfolio oversight.

Portfolio analysis in strategic management involves analyzing every aspect of product mix to identify and evaluate all products or service groups offered by the company on the market, to prepare the detailed strategies for each part of the product mix to improve the growth rate.