It’s about the journey, not the destination.

But an active management strategy is far more holistic than simply assessing bottom lines. In fact, active management doesn’t always promise a different result than a passive management strategy. Rather, it promises a different and, arguably better, investor experience.

Both active and passive management strategies claim similar goals: to achieve as much asset growth as possible given an individual investor’s goals, risk tolerance, and time horizon. But how one arrives at that destination—what route is taken, what decisions are made, what emotions are felt along the way—is an entirely different process. Remember, the investment journey is not a quick one. It may last upwards of 30, 40, or 50 years, which is a significant duration of time to endure often volatile market conditions. How well an investor thrives emotionally is a critical consideration.

Same destination, different journey.

Consider this scenario: Traveler A and Traveler B are trekking from Boston to San Francisco. Traveler A travels by train; Traveler B travels by car. Traveler A will hop on his train and be locked into a route, much like passive management locks investors into a buy-and-hold strategy. He might encounter storms, power failures, and various delays along the way, but he must sit and weather the course, for better or worse.

Conversely, Traveler B has the freedom to change his route. Each day he reviews the route, traffic conditions, and the weather forecast, evaluating whether or not to alter his plans. When he arrives in San Francisco, he may have taken a similar route as Traveler A. The difference is that Traveler B had choices. He had flexibility. He had control.

Same destination, different journey.

Investors who identify with Traveler B are those who often fare well emotionally under an active management approach. These investors are typically those who deal with all corners of life—health, relationships, careers—with action and intentionality. Why should their investments be managed any differently? Trusting their investments to an active management professional is a congruent lifestyle decision. They can rest assured that their investment strategies and overall portfolio are receiving regular, scrupulous attention, without the burden of personally making decisions that can be subject to emotional highs and lows.

During the downward spiraling market of 2008, investors experienced a queasy ride. Many, understandably, are still leery of murky market waters. While active management cannot vaccinate investors against a sick market, it can often smooth the ride and sooth the symptoms that might result: fear, anxiety, helplessness, and victimization. A common misconception is that active management actually yields a riskier investor experience. On the contrary, active management proactively seeks to hedge against dramatic loss by unapologetically refraining from chasing exorbitant gains and employing a wide range of often counterbalancing strategies.

Of course, every investor defines “bumpy ride” a bit differently. Financial psychologist Dr. Kathleen Gurney defines nine money personalities that may dictate feelings and behavior amid ebb-and-flow market conditions. The “high roller,” for instance, values the thrill of risky investments over feeling financially secure. By contrast, the “optimist” prizes peace of mind, happy to leave the controls in the hands of a trusted investment manager. Another is the “money master,” who is self-confident yet willing to take advice from advisors.

An active management strategy may not appear to be entirely ideal for investor personalities that desire to personally grip the reins on their investments. Under a skilled manager, however, it could be argued that any investor might be well-suited for active management. This requires an appropriate combination of strategies and an advisor who has developed a solid understanding of not only the investor’s personality, but also their risk tolerance. Defining risk tolerance, though, can be a combination of art and science.

Various tools exist to aid advisors and investors in defining risk profiles, but the challenge lies in the fact that “for most investors, risk tolerance is less about wonky statistics and more about emotions,” Jeff Schlegel wrote recently in Financial Advisor. It might be argued that client emotions are anything but quantifiable, but are all important for the skilled advisor to understand.

Importantly, even the most accurate risk profiles may come with an expiration date. That is, investor behavior is subject to life stages and circumstantial events—and virtually all clients require periodic reevaluation.

When risk tolerance is thoroughly understood and individual objectives are clear, the active management journey is one that, for most investors, may positively redefine their investing experience altogether and help guide them more smoothly to their ultimate investment destination.

The opinions expressed in this article are those of the author and do not necessarily represent the views of Proactive Advisor Magazine. These opinions are presented for educational purposes only.