When Does Active Investing Actually Add Value?

This is one of the most common, and most misunderstood, questions in investing.

For years, investors have been told two competing stories:

• “Active investing is expensive and rarely beats the market.”
• “Passive investing leaves you exposed when markets turn.”

So which is it?

The truth, as usual, sits somewhere in the middle.

Active investing doesn’t always add value.
But when it does, it can make a huge difference.

The key question isn’t whether active investing works, it’s when it works.

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Why People Are Asking This Question Now:

Because markets no longer behave the way they did for much of the last decade.

We’ve moved from:

• steady upward trends
• low volatility
• central banks acting as safety nets

Into a world of:

• sideways markets
• sharp sell-offs and fast rebounds
• political headlines driving prices
• higher interest rates and tighter liquidity

In those conditions, simply “buying the market and waiting” feels far less comfortable.

Investors want clarity, not ideology.

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When Passive Investing Works Best:

Passive investing tends to shine when markets:

• trend consistently higher
• experience low volatility
• reward broad exposure
• punish market timing

In long, uninterrupted bull markets, doing very little can feel like doing something clever.

And that’s fine.

The problem is that markets don’t always cooperate.

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Where Passive Investing Starts to Struggle:

Passive investing struggles most in three environments:

1. Flat Markets

When markets go sideways for long periods, passive investors often experience:

• years of low or zero real returns
• full exposure to drawdowns
• no mechanism to protect capital

Time alone doesn’t always heal these portfolios.

2. Volatile Markets

In volatile conditions, passive investors absorb:

• the full force of sell-offs
• the emotional pressure of rapid swings
• false rallies that fade quickly

There’s no defence built in. Just exposure.

3. Markets Driven by Headlines, Not Fundamentals

Geopolitics, elections, trade wars, rate shocks, these can overwhelm long-term fundamentals in the short and medium term.

Passive investing has no opinion on any of this.

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This Is Where Active Investing Adds Value:

Active investing earns its keep when risk matters as much as return.

At its best, active investing focuses on:

• managing downside, not predicting headlines
• adapting exposure to conditions
• protecting capital during unfavourable periods

This is especially powerful in:

• flat markets
• volatile markets
• late-cycle environments

Not all active strategies do this well, but the good ones are built specifically for it.

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Risk-Managed Strategies: The Real Difference:

The biggest advantage of active investing isn’t stock-picking.

It’s risk management.

Risk-managed strategies aim to:

• stay invested when conditions are favourable
• reduce or remove exposure when risks rise
• avoid catastrophic drawdowns that take years to recover from

Avoiding large losses matters more than chasing every gain.

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Net-of-Fees Is What Counts:

A common criticism of active investing is cost.

It’s a fair concern, but also an incomplete one.

What matters is net-of-fees outcomes, not headline charges.

Paying a modest fee for:

• smoother returns
• reduced drawdowns
• better capital preservation

can be far more valuable than paying very little for poor outcomes.

Cheap isn’t the same as effective.

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Active vs Passive Isn’t a Religion:

This isn’t about choosing sides.

It’s about using the right tool for the right environment.

Passive investing can work brilliantly in the right conditions.
Active investing can add enormous value when conditions change.

The mistake is assuming one approach works all the time.

Markets evolve.
Portfolios should too.

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Final Thought:

Active investing adds value when:

• markets are flat
• volatility is elevated
• risk matters more than bravado
• protecting capital is as important as growing it

The question isn’t “Should I be active or passive?”

It’s:
“Is my portfolio designed for the market we’re actually in?”

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👉 Your Next Step:

If you’d like to understand how risk-managed, actively traded strategies could fit into your portfolio:

👉 Book a FREE portfolio consultation call.....Click here.
No pressure. No jargon. Just clarity.

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