With the rise of low-cost exchange traded funds (ETFs), the impression that everyone simply investing in an appealing tracker fund, or so-called passive investments, will receive performance bliss is, while seductive, somewhat misguided.
It’s unfortunate that passive investing is too often used as a synonym for index investing, as investment decisions are never passive as investors (individuals and asset managers) constantly make active investment decisions that are based on risk appetite and return expectations. To illustrate this in its simplest form, investors can simply switch between cash, a lower-risk portfolio and a higher-risk portfolio such as a specific equity index investment as and when either personal circumstances or macroeconomic fundamentals change...
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