If an emerging trend seems obvious, you’re willing to invest in a sector fund or invest in individual stocks that should benefit from said trend. You also like to invest in products you use. Nothing feels better than enjoying the product and making money on the product to then pay for the product.
At the same time, you also realize that consistently outperforming your target benchmarks over the long run is impossible. Therefore, you keep three times more assets in passive index funds. Your active investments are in mostly sector ETFs instead of individual stocks.
For a passive plus strategy, you may want to consider investing through a robo-advisor like Personal Capital. Personal Capital will construct a passive investment portfolio with mainly ETFs for you based on your risk tolerance.
If you don’t want Personal Capital to manage your investments automatically, you can still use their free financial tools to manage your own money.
A 50% active percentage is the highest percentage I recommend for all equity investors. For those of you who invest for a living, a 50/50 split may be for you. You go to bed at night thinking about your investments. You wake up at least two hours before the market open to read all the news.
Instead of listening to a riveting whodunnit podcast, you’d rather listen to quarterly company earnings calls. Instead of reading a great novel, you’d rather read company financial documents and S-1 filings. You’re hooked on the stock market!
Every day, there are fantastic businesses being built or crazy market manipulation stories to follow. To not look for these potential winners would be foolish. They are all around us. You believe capitalism is the greatest system in the world.
Despite know the odds are against you, we all also suffer from a little Dunning-Kruger (delusion). After all, you’ve got to be a little crazy to believe you can consistently beat the odds. Yet, there are people who do.
For those of you who have at least 10 years of investing experience, who have at least beaten your target benchmark for at least five years, who have the time, and who simply love the process of investing, a 50/50 split may be appropriate for you.
A 50/50 split might also be appropriate for younger investors (<30 years old) who don’t have as much to lose. It’s best to learn with less money whether you are a good active investor or a bad active investor.
If you find yourself to have investing acumen, you can gradually build up the absolute dollar amount and percentage. Or, you can allocate your active money to private funds so that connected people can invest for you.
You’re a professional money manager who picks stocks for a living. You’re also required to have skin in the game by investing a percentage of your bonus or salary into your fund. This way, you feel the pain of your losses and the glory of your wins. Many hedge funds require its employees to invest this way.
You’re also someone who loves everything about the stock market. Investing doesn’t give you stress. It brings you joy! How the heck are you ever going to find the next Google, Facebook, Amazon, Tesla, Microsoft, Dominoes Pizza (!) if you don’t actively pick stocks?
Based on your long track record, you are considered a great investor. You’ve been able to outperform the S&P 500 or your index of choice more years than you underperformed by at least a 2:1 margin.
If you are financially independent or have other means of generating income, it’s easier to take more active investment risk. For example, you might operate a profitable lifestyle business or have a large trust fund. You also may not have kids.