Individual investors

Active vs. passive investing Understanding the differences It's easy to get caught up in the Wall Street hype about which investment approach is better. Active vs. passive: The basics Active management is simply an attempt to "beat the market" as measured by a particular benchmark or index. For example, an investor might buy or sell certain stocks to try to get better returns than one of the stock market indexes such as the S&P 500 Index or the Russell 1000® Index. The aim of active fund management — after fees are paid — is to outperform the index for a particular fund (not to mention other fund managers they may be competing against). Prevailing market trends, the economy, political and other current events, and company-specific factors (such as earnings growth) all affect an active manager's decisions. Passive management is more commonly called indexing. Indexing is an investment management approach based on purchasing exactly the same stocks and bonds, in the same proportions, as an index. This management style is considered passive because portfolio managers don't make decisions about which components to buy and sell; they simply copy the index Which approach works best? Proponents of each believe their approach is the right one, the one that has the potential to generate the greatest amount of return over the long term. Hard facts aside, active and passive management are in many ways similar to political parties. The two camps see the investment world in very different ways, both making logical and passionate arguments for their viewpoint. Passive managers generally believe that it is difficult to beat the market. Therefore, they essentially offer performance that closely matches an index for those investors who are unwilling to assume the risks of active management. Active managers believe the market can be beaten. While they can't beat it all the time, many active managers do believe there are certain irregularities in the market that can be taken into consideration to achieve potentially higher returns. Active management advantages   Expert analysis — Seasoned money managers make informed decisions based on experience, judgment, and prevailing market trends. Possibility of higher-than-index returns — Managers aim to beat the performance of the index. Defensive measures — Managers can make changes if they believe the market may take a downturn. Active management disadvantages   Higher fees and operating expenses. Mistakes may happen — There is always the risk that managers may make unwise choices on behalf of investors, which could reduce returns. Style issues may interfere with performance — At any given time, a manager's style may be in or out of favor with the market, which could reduce returns. Passive management advantages   Low operating expenses. No action required — There is no decision-making required by the manager or the investor. Passive management disadvantages   Performance dictated by index — Investors must be satisfied with market returns because that is the best any index fund can do. Lack of control — Managers cannot take action. Index fund managers are usually prohibited from using defensive measures, such as moving out of stocks, if the manager thinks stock prices are going to decline. Taking a long-term view Wall Street will continue to debate the benefits of active versus passive investment management. And from time to time, one approach will be more popular than the other. As an individual investor, try to ignore the trend of the moment. When all is said and done, keep in mind that both active and passive managers are selecting investments from the same pool of equities. Request a referral to a financial advisor who can help. Fund objectives, risks, charges and expenses should be carefully considered before investing. For a prospectus containing this and other important information call Russell at 1-866-676-7680 or go to the prospectus and reports page to download one. Please read the prospectus carefully before investing. Copyright © Russell Investments 2011. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. The S&P 500 Index: An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Standard & Poor's Corporation is the owner of the trademarks, service marks, and copyrights related to its indexes. Indexes are unmanaged and cannot be invested in directly. Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, representative of the U.S. large capitalization securities market. Securities products and services offered through Russell Financial Services, Inc., member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFS 2626. First used: December 2009.			Value of an advisor Benefits of working with a financial advisor Request a list of advisors in your area   Investing with Russell Obtain deep diversification via Russell's investment options: Russell mutual funds LifePoints® Funds Separate accounts Printer friendly version of this page

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