Active asset management has advantages over passive strategies for retirement investing. It requires a dynamic approach to adjust the portfolio in response to market fluctuations, keeping assets properly allocated to reduce risk. Studies show people with financial plans accumulate 250% more savings than those without. Active management can generate 1.82% higher annual returns, increasing retirement wealth by 29%. While riskier than passive strategies, active management allows harvesting higher returns from risky assets when the market is strong and selling those that weaken, potentially achieving better performance than a single asset type, especially for long-term investors.

1. Better Go Active for Retirement Goal
Panravee Panitwattana (Para)
ID: 0581346
Research Paper
Applied Critical Thinking
Instructor: Rachel Herman
Fall 2015

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Abstract
The purpose of this research is to investigate a active asset management to determine
whether or not a active asset management has advantages over other types of investment
strategies for retirement investing. There are two facts that people should be aware of when
considering their retirement years. The first important fact is inflation, which means the value of
money in saving account today will be less in the future due to its potential earning capacity.
Another fact is the fluctuation of asset prices in the market, the unpredictability of which causes
difficulty for investors to make informed decisions. Since the stock market tends to be uncertain,
it is important to manage assets actively, not only to get a high return but also to protect assets
value. Active asset management strategy requires a dynamic approach, so that investors can
respond actively to asset price fluctuations. In addition to the dynamic approach, diversity of
assets in portfolio management is essential to reduce overall risk by offsetting the risk among
assets. It is highly likely that investors who adopt this active asset management strategy in
retirement investing will receive an excellent return. As a result, they are ready for retirement
years, without having to reduce daily spending or worry about affording comprehensive health
care services.

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Few people either have financial plan or consult with financial advisor for retirement
years. According to a new report, Understanding and Managing the Risks of Retirement, from
the Society of Actuaries (SOA), although many people are concerned about their long-term
saving for retirement, only some pre-retirees and retirees meet with financial planner to discuss
their retirement savings and investments plan (as cited in Hopkins, 2013). Hopkins explained
that financial plans, also known as asset management portfolio, help America protect its value of
retirement income of nearly $4.3 trillion from inflation. According to an international Hong kong
and Shanghai Banking Corporation study, Twigg (2011) illustrated that people who have
financial plans accumulated nearly 250% more retirement savings than people without a
financial plan (as cited in Hopkins). The research by David Blanchett and Paul Kaplan of
Morningstar (2013) showed that asset management plan helps individuals generate
approximately 1.82% excess return each year, creating about 29% higher retirement income
wealth. However, there is one important fact that people should understand before jump into the
world of investment. Time value of money seems to play as a major part of investment world.
What this means is that a dollar today will be less value in the future. For example, after 3 or 4
years, the value of money that people deposited in the bank will be decreased because of the
inflation (Brigham & Houston, 2014). For this reason, people might consider to invest in assets
that give higher rate of returns than current inflation rates, in order to maintain or gain more
value of their money for the future. In fact, Sethi (n.d.) pointed out that especially for young
workers, who have a long time before they need their long-term investment money, might start to
put some of their saving that sit in saving account in other assets such as stocks, bonds, or mutual
funds. This is a opportunity to earn more than 0.01% interest rate. Although the active asset
management is more risky than other strategies, its advocates argue that this strategy can

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generate higher returns. Those who oppose to active asset management claim that this strategy is
too risky for some investors, especially who are in mid-40s. Of course, active asset management
strategy is a considerable high-risk investment. However, this strategy works for some investors,
especially who are in mid-20s. These young workers can afford high-risk investment with the
potential of higher returns, because they have time to made back any losses. In addition to the
time value of money that investors need to be aware of, the fluctuation of asset prices is another
important fact that should not be ignorant. Because of the market is unpredictable, so investors
may not have enough information to make informed decisions to buy or to sell the assets that
will generate good returns. For this reason, investment decision makers need an effective
investment strategy to handle with the asset price fluctuation. Active asset management strategy
seems to have a potential not only to deal with the volatility of asset prices, but also yield high
returns. In addition to generate high returns, it is very possibility that if investors manage their
investments actively, it will counterbalance the risk of each assets in a portfolio that may occur
when market is unstable. For this reason, active asset management seems to have advantages
over other types of investment strategies because it is more flexible and yield higher return.
The economic environment is always changing, which makes it difficult for investors to
make informed decision to buy or sell the right assets at the right time. For this reason,
investors need a investment strategy that has a flexible approach to handle with the fluctuation
of asset prices. As cited in “The Experts” (2013), Magoon, chief executive of Magoon Capital,
explained that active asset management is an effective strategy for managing asset prices
during volatile time. Magoon went on to explain that active asset management is more flexible
to implement investments that are complex and fast moving. Particularly when the market is
unpredictable, asset prices tend to change faster than market forecast. According to Connors

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(2011), the principle of active investing is to balance the assets with diversified investment
strategies. According to Eleanor Blayney, consumer advocate of the Certified Financial Planner
Board of Standards, comparing to passive investment strategy which must stay fully invest in
index to match the benchmarks’ returns, active investment strategy can react defensively or
opportunistically during a bear market (as cited in The Experts). Bergen (n.d.) pointed out that
as market tends to fluctuate, active asset management, which require dynamic approach, is
needed to adjust the mix of assets in a portfolio as market rise and fall. Bergen illustrated that
investors should buy a stock that seems to increase its value when the market is bullish. In
contrast, investors should sell a stock that seems to decrease its value when the stock market is
declining. The key is to invest in the right thing at the right time. For example, investors should
invest in the technology sector during technology boom such as tech stocks or tech funds, sell
that stock or fund when it starts to lose its value. Sethi (n.d.) explained that by keep on tracking
and rebalancing portfolio will make sure assets remain allocated properly and protect overall
value of portfolio by offsetting risk the among assets when market rise and fall.
In addition to flexibility of active asset management, another advantage of managing
asset actively is it generates high returns. In fact, according to Aston (2015), there is a debate
between the advocates of active investors, who attempt to beat the market by investing in the
assets that they believe will outperform the markets’ benchmark indexes, and passive
investors, who buy index fund and exchange-trade funds (ETFs) meant to match the
benchmarks’ returns. ETFs are funds of stocks, commodities, or bonds that track an index but
are traded like a stock. Aston went on to explained that it is possible for active investors, who
use mutual funds to invest in stocks, to pick active funds that outperform the benchmarks. He

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pointed out that a third party expert source such as Morningstar’s analyst rating of mutual fund
is a good place to start searching for mutual funds rated gold. For instance, Morningstar
reported that Vanguard Primecap Core fund generated 10.4% ten years return and Vanguard
Capital Opportunity fund generated 10.3% ten year return, whereas index generated 7.7% ten
year return ( as cited in Max, 2014). In order to achieve high returns, active asset management
requires a dynamic approach to perform effectively. Keon (2014) explained that a dynamic
approach helps investors to rebalance the combination of assets as the economy strengthens
and weaken. Keon went on to explained that in the bullish time, active asset managers use
dynamic approach to harvest a group of risky assets that generate higher returns than investing
in one type of asset. In contrast, active asset managers sell the assets that seemto lose its value
when the market is bearish. It is highly likely that active asset management that uses a dynamic
approach will achieve higher returns than investing in single type of asset. According to the
article “ Drawdown Control Solution ” (2013), Graph 1 shows the value of three different assets
that changed over time during 1998 to 2011. Three lines represent three types of investments
which are bonds, equities, and Dynamic Asset and Risk Management model (DARM). Allocation
to equities represent the market. As can be seen, there was a seasonal fluctuation in the
market from 1998 to 2011. Asset prices decreased and increased continuously in this period.
Especially, when there was the collapse of the housing bubble which caused a sharp decrease
from 2008 to 2009. Still, DARM generated higher return than investing in a particular group of
bonds or a particular group of equities. As can be seen, the value of DARM significantly
increased from 1998 to 2011, although there was a economic crisis. This represents 60% of the
total value of DARM that was generated over this time period. The probable reason for this

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significantly increase in the value of Dynamic Asset and Risk Management model is the
flexibility of active asset management strategy. Since the economy tends to be unstable,
investors need to manage their investment plan actively by using dynamic approach to keep
track and rebalance the assets. The idea is to create a mix of diversified assets that together
have the potential to provide a positive return in any market environment. Although active
asset management is considered a high-risk strategy, active asset management can generate
high returns. It is highly likely that this strategy works for some people, who have a long time
before they need their long-term investment money. Particularly, young workers in mid-20s,
who plan to invest for their long-term goal. However, when these investors are in mid-40s, they
might want to become more conservative and protect what they have acquired.

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References
Asset allocation: Asset allocation. (2015, June 5). Retrieved from
http://money.cnn.com/pf/money-essentials-asset-allocation/
Aston, D. (2015). A defence of active investing. MoneySense, 17(4), 43-45,47. Retrieved from
Proquest database.
Blanchett, D., & Kaplan P. (2013, August 28). Alpha, Beta, and now…Gamma. Retrieved from
http://corporate.morningstar.com/ib/documents/PublishedResearch/AlphaBetaandNowGa
mma.pdf
Brigham, E. F., & Houston, J. F. (2014). Fundamentals of financial management (14th ed.).
Boston, MA: Engage Learning
Bergen, J. V. (n.d.). 6 Asset allocation strategies that work. Retrieved from
http://www.investopedia.com/articles/04/031704.asp
Connors, L. (May 25, 2011). Use active investing strategies boost returns. Medical Economics,
88(10), 77. Retrieved from Business Source Complete
Drawdown control solution: Dynamic asset and risk management. (2013, January 5). Retrieved
from http://active-asset-allocation.com/drawdown-control/
Hopkins, J. (2014, August 28). Not enough people have financial advisers and new research
show they should. Retrieved from
http://www.forbes.com/sites/jamiehopkins/2014/08/28/not-enough-people-have-
financial-advisers-and-new-research-shows-they-should/

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Keon, E. (2014, April). A case for active asset allocation. Retrieved from
http://www.institutionalinvestor.com/images/416//White%20Paper/QMA-
Whitepaper.pdf.
Max, S. (April 1, 2015). Return of the stockpickers. Retrieve from
http://www.barrons.com/articles/return-of-the-mutual-fund-stockpickers-1420870199
The experts: When does active management make sense? ( 2013, April 21). Retrieved from
http://www.wsj.com/articles/SB10001424127887324050304578408902783879748
Twigg, M. (2011). The future of retirement life after work? Retrieve from
file:///Users/Para/Downloads/130905-life-after-work%20(2).pdf

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Appendix
Graph 1
Dynamic Asset and Risk Management (DARM)
Source: www.active-asset-allocation.com

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