Passive Investments Have Rewards and Risks Alike

Passive Investments Have Rewards and Risks Alike

Passive investments such as index funds and exchange traded funds (ETFs) provide cheap access to global stockmarkets, but AMP Capital’s Head of Investment Strategy and Chief Economist, Shane Oliver, says they create risks of their own.

“Yes there is a positive to passive investing, it gives you the underlying exposure and the fees are low,” Oliver says, adding that “a lot of effort goes into stock picking that doesn’t necessarily pay off over the long term”.

As the trend toward passive investment rises around the world, though, Oliver wonders if things have been pushed too far. He cites the tech boom in the 1990s as a case in point. Those in passive share investments were more exposed when the tech boom burst than active investors who were in funds where the fund managers were buying shares based on traditional valuations.

“The demand for passive investment reflects a healthy view that the key is getting exposure in the market,” he says, but “you have got to go in with your eyes open”.

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