All advisory firms have clients who are most concerned with generating income from their portfolios. Most broad based domestic index funds yield less than 2%.
Of course plenty of folks would look at those three types of client and conclude index fund and that is not wrong, there are no wrong answers, but to the extent some investors are concerned with volatility, wealth preservation and income, one solution like index funds cannot be right for everyone.
The role of an advisor then becomes understanding the needs of their clients and using tools to construct a portfolio suitable for each client. A nervous nellie probably would sleep better with some exposure to funds that reduce volatility through some sort of screening process, long short strategy or that can change its asset allocation.
Some of these same types of tools can also be appropriate where wealth preservation is the priority. People needing more income are likely going to want to allocate to funds with income objectives.
These types of priorities, and plenty of investors have them, are not necessarily consistent with beating the S&P 500 index over some period of time.
To the extent indexing is valid for some investors so too are active strategies valid for other investors. In a future post we’ll look at blending active and passive in a portfolio.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.