Financial Planning

Financial Advisors Who Actively Allocate to Passive Indexes

By  Brian Thorp

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Over the last decade, low cost index funds and ETFs have surged in popularity. These passive investment vehicles offer broad exposure to the underlying stocks and bonds of the indexes they follow, usually at a very attractive price.

But just because these investment portfolios are passive doesn’t mean how you choose to allocate among index funds needs to be passive as well. In fact, actively allocating an investment portfolio among passive index funds offers the potential benefits of active management with the cost-savings of index funds.

Numerous factors are usually considered by professional investment managers to construct actively managed portfolios. Factors often include economic conditions, industry cycles, government polices, interest rates and taxes among other inputs.

If you’re preparing to hire a financial advisor, should you hire an advisor who will actively allocate your portfolio among index funds? Let’s learn more about this investment approach to help you decide if hiring an advisor who actively allocates among index funds is right for you.


📊 Get to Know Financial Advisors Who Actively Allocate to Passive Indexes

This page is organized into sections to help you quickly find the information you need and get answers to your questions:

  1. Q&A with Financial Advisors Who Actively Allocate to Passive Indexes
  2. Get Answers to Your Questions About Actively Allocating to Passive Indexes
  3. Browse Related Articles

– Financial Advisors Who Actively Allocate to Passive Indexes –

Three Questions with Rob Lloyd, CFA:

We asked Houston-based financial advisor Rob Lloyd to answer three questions why he chooses to actively allocate client portfolios to passive indexes.

Q: Why do you believe actively allocating to passive index funds is a thoughtful approach for investors to consider?

Rob: It seem counter-intuitive that index funds would routinely beat active portfolio managers. After all, with all their brains, research and technology, surely a good management team can beat their benchmark. Sadly, the evidence shows exactly the opposite. Standard & Poor’s generates a report several times per year called the S&P Indexes v. Actives (SPIVA) Scorecard. It indicates that active managers consistently underperform their benchmarks in a variety of environments and time periods. Until this trend changes, investors should focus their research on index selection and not security selection. Index fund investing is also less expensive than active fund investing. Without research, personnel, and other overhead expenses, index fund management is quite cheap. The performance history and expense profile of active managers compared to index funds has attracted trillions of dollars into index based strategies. We think index funds make a lot of sense. Additionally, asset allocation choices between stocks and bonds are recognized as major factors in overall portfolio performance. For this reason, we think an index strategy that focuses on asset allocation is an effective strategy in this environment.

Q: How frequently do you rebalance your allocations and why?

Rob: Asset allocations may be slightly modified month-to-month, but larger changes to asset allocations occur less frequently. The key factors we use in our investment process are economic, fundamental, technical and quantitative. Economic factors describe the health of the economy and credit conditions. Fundamental factors are expressed by companies in their earnings reports. Technical factors are derived from market trends and price indicators. Quantitative factors are formulated from an analysis of economic, fundamental and technical data points. Our research process incorporates these different views and guides us in rebalancing our asset allocation through the market cycle.

Q: What are the most important factors you consider to determine the initial asset allocation for a new client?

Rob: The initial asset allocation recommendation for a new family is the result of a multi-step process. For families that are new to us, it is extremely important to determine the long term asset allocation target. Every family is different regarding savings, spending, time horizon and risk tolerance. With a careful analysis, we estimate the blend of stocks, bonds and cash most likely to help the family succeed at achieving their long-term goals over the next 10, 20 or 30 years. Once that overall target allocation is selected, each individual account is assigned their own asset allocation after considering the tax status of the account. Typically, taxable accounts which are managed conservatively are drawn first, while accounts with longer investment time horizons may be more invested more aggressively. Additionally, each individual account may be overweight or underweight risk depending on decisions by the portfolio managers. All long-term allocation decisions must first be approved by the family before moving ahead to invest in our discretionary portfolios.

Get to Know Rob Lloyd:

Rob Lloyd, CFA

Lloyds Intrepid Wealth Management

The Woodlands, Texas

Explainer of markets, plans and portfolios.

The Woodlands, Texas

Explainer of markets, plans and portfolios.

Areas of Focus

  • Employee Stock Options
  • Estate Planning
  • Investing
  • Investment Management
  • Living in Retirement

View Rob’s profile page on Wealthtender or visit his website to learn more.

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About the Author
Brian Thorp, Founder and CEO of Wealthtender profile picture

Brian Thorp

Founder and CEO, Wealthtender

Brian and his wife live in Texas, enjoying the diversity of Houston and the vibrancy of Austin.

With over 25 years in the financial services industry, Brian is applying his experience and passion at Wealthtender to help more people enjoy life with less money stress.

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Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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