Understanding how active management of retirement savings works

What is active management?

When it comes to investing your retirement savings, there are different strategies to consider. One option is active investing, which leverages the expertise of skilled managers to make decisions about how and where to invest your savings to help achieve certain goals.

Compared to index investing, active strategies involve an investment manager that aims to earn you higher returns in relation the index associated with a fund, also known as the benchmark. They seek these higher returns by making informed decisions about what you’re invested in and how much of your savings is allocated to certain opportunities. Active managers can also possibly reduce risk and help your portfolio navigate volatility in the event of market downturns.

The decisions made by active managers are based on research and analysis to identify opportunities and risks for your portfolio. They could determine that certain industries are likely to experience higher growth and allocate more of your portfolio to that area. Similarly, they may move your investments away from a different investment area that they decide is overvalued and likely to decline in value.

Potential benefits of active management

Econ growth icon
Higher growth potential
Your investments may outperform the market, earning you higher returns that can help you catch up to your savings goals or more comfortably retire.
Choice arrow
Active managers can move your savings to investments that can help meet your goals across a range of market conditions.
Protect shield icon
Risk management
As part of the strategy, managers can shift away from areas that they believe might be exposed to higher levels of risk to protect your savings in market downturns.

Potential considerations with active management

Fees tag icon
Higher costs
The extra work required to research, analyze, and more frequently trade may result in higher fees. These higher costs may be offset by additional growth.
Balance Icon
No guarantees
It is informed by decades of experience but not an exact science. There are no guarantees that your manager will outperform the market and might even underperform.
Person icon
Unskilled managers
Good active management can be hard to find and requires due diligence to ensure you have skilled and reputable oversight over your investments.

How active management can help manage risk

The benefit of active investing strategies isn’t limited to just higher returns. It’s likely that the market will experience both ups and downs over the course of your retirement savings journey. Active managers can do their part to help limit losses during downturns. They can do this by being nimble and using diversification and other tools to not only seek higher performance but also mitigate risk.

With index investing, your savings will stay invested in a consistent manner according to what the fund is aligned with. But when actively managed, you’ll have a decision maker that can potentially anticipate and respond to market events. By utilizing hedging, active managers can make investments that could generate returns to offset losses in other areas.