After 40 years in this business, I've watched the passive investing movement grow from a niche strategy into what some people treat as financial gospel.
The pitch sounds appealing: Buy low-cost index funds, sit back, and let the market do its work. No decisions required or active management fees, and just autopilot your way to retirement.
What decades of experience have taught me is that autopilot can work when conditions are stable. When markets turn volatile, when economic cycles shift, when your personal circumstances change, autopilot can present challenges.
Let me explain why active management can matter, particularly for families with significant wealth.
The Autopilot Approach
Passive investing rests on the assumption that markets are efficient and that trying to beat the market is difficult. According to research from Apollo, passive strategies have delivered returns over long periods, particularly in U.S. equities.
That's true as far as it goes. However, it can miss something: Not everyone has the same ability to ride out every market cycle with their entire portfolio on autopilot.
Think about it this way. If you're 35 years old with three decades until retirement, a 30% market drop might not affect your lifestyle. You have time to potentially recover. But if you're 62, planning to retire in three years, that same 30% drop could affect your retirement timeline.
Passive strategies don't typically distinguish between these situations. They generally treat a 35-year-old and a 62-year-old similarly: Buy the index and hold on.
What Active Management Can Mean
Active management gets mischaracterized in popular finance discussions. Critics sometimes present it as if active managers are constantly day-trading, racking up fees, and trying to time every market movement.
That's not how professional active management typically works.
Real active management can mean making thoughtful, research-driven decisions about:
Asset allocation adjustments based on market conditions and your personal timeline. When markets show certain signs, we might consider adjusting equity exposure based on individual circumstances.
Risk management that goes beyond just holding everything. This can include approaches to manage volatility during market turbulence and to consider when to take gains.
Tax considerations throughout the year, not just at year-end. This can include tax-loss harvesting, strategic rebalancing, and coordinating withdrawals across different account types.
Sector and style positioning that recognizes not all parts of the market move together. Technology, healthcare, energy, and financial sectors go through different cycles.
We don't run our business on autopilot, and we don't manage portfolios that way either.
When Passive Strategies Can Present Challenges
Let me walk you through some scenarios to illustrate where passive strategies can present considerations.
Market concentration: By the end of 2025, the top 10 stocks in the S&P 500 represented approximately 41% of the index's total value, according to S&P Dow Jones Indices. When you buy an S&P 500 index fund which is weighted by market, a large portion of exposure is on those 10 companies.
Valuation considerations: Passive strategies typically buy more of whatever has become expensive. When tech stocks rise to high valuations, index funds buy more tech stocks. When a sector becomes elevated, index funds increase exposure.
Active management can allow stepping back to evaluate whether current valuations make sense given earnings, growth prospects, and economic conditions.
Life-stage considerations: Passive-only approaches may not account for your personal situation. A 25-year-old and a 65-year-old have different needs, risk capacities, and time horizons. Autopilot typically treats them identically.
Behavioral considerations: When markets drop significantly, some passive investors can panic and sell at difficult times. Some studies, including those from Dalbar, have shown that investors sometimes underperform the market indexes they're invested in, in part due to timing decisions during volatile periods.
Active management can provide professional oversight during those moments when emotions run high.
The Cost Question
One of the main considerations against active management centers on cost. Index funds can charge 0.03% to 0.10% annually. Active management typically costs more.
What can matter: cost relative to value received.
If passive management costs 0.05% but exposes you to volatility during market downturns because allocations aren't adjusted for your timeline, that low cost might not represent the best value for your specific situation.
If active management costs 1% but helps with potential loss management, tax optimization, and strategy adjustments as your life circumstances change, that cost could represent value for some investors.
The enemy of good is perfect. People sometimes chase the "perfect" low-cost solution and miss the bigger picture: Are you positioned to work toward your goals with appropriate risk considerations?
What Oversight Can Look Like
Active management at our firm doesn't mean we're trying to predict every market movement. It means we're paying attention and considering adjustments when they might be appropriate.
During market volatility, we can review portfolios more frequently. When economic indicators shift, we assess whether current allocations remain appropriate. When tax situations change, we might adjust strategies.
We analyze your complete financial picture: your business situation, your retirement timeline, your tax bracket, your estate planning needs, and your risk tolerance. Then we work to build a strategy that addresses these factors together.
The Technology Analogy
Think of passive investing like Tesla's autopilot. It can work on clear highways with well-marked lanes and predictable traffic.
However, when conditions get complex, the weather changes or unexpected situations arise, you typically want an experienced driver paying attention and ready to take control when needed.
After four decades managing money through multiple market cycles, recessions, bubbles, and crashes, I can tell you: The market doesn't always stay on clear highways with well-marked lanes.
There can be times to let things run. There can be times to consider adjustments. The skill is evaluating which approach might be appropriate for different situations.
The Bottom Line
Passive investing has a place in financial planning. However, treating it as the only answer can overlook the reality of managing significant wealth through changing market and life circumstances.
For families with substantial assets, particularly those approaching or in retirement, active management can provide something passive strategies may not: Professional judgment applied to your specific situation.
If we don't do our job, we should be fired. That accountability only matters if someone's doing the job. We believe, autopilot isn't doing the job. It's delegating everything to market forces.
Your financial future can benefit from professional oversight, thoughtful decisions, and strategies that can adapt as your life and markets change.
This information is for educational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results. There is no guarantee that any investment strategy will achieve its objectives. Investment advisory services offered through Summit Financial, LLC, a SEC Registered Investment Advisor. Investors cannot directly purchase an index. 8770643.1
