Exploring The Benefits Of Active Investing, With TPP Investment Platform

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Exploring The Benefits Of Active Investing, With TPP Investment Platform

Seasoned and beginner investors alike have two options when it comes to investing: be passive or be active. This guide discusses the pros and cons of each strategy, before focusing on the main types of active investing and how an investor might choose one that suits. The reader will find out where investment platform TPP fits across the spectrum of different active investing approaches, and should come away with a robust understanding of the investing options available to them.

Investing approaches

As the name suggests, active investing requires you to take a proactive approach to your portfolio. That involves making more frequent buy or sell decisions in order to outperform the market. Passive investing, by contrast, is a hands-off approach that involves investing in entire stock markets through a market index exchange-traded fund (ETF).

Active investing tends to suit more experienced, assured investors who have enough free time to conduct thorough research. In theory, the extra effort is compensated by the potential for higher returns, more control over a portfolio, and the chance to take advantage of market inefficiencies that passive strategies may overlook. The downside, though, is that active strategies come with a higher potential of making losses, are time-consuming, and carry more expensive transaction costs due to the frequency of trading.

Passive investing is a simpler tactic, usually with lower costs and lighter risks. A typical passive investor may be risk-averse and cost-conscious, with minimal time or expertise. What’s more, they haven’t set out to – or don’t believe it’s possible to – beat the market.

Types of active investing

If you want to be more hands-on with your investing strategy, there are three main routes to consider:

“Do it yourself” stock-picking: Individual stock-picking involves extensive research into companies and industries, making it one of the most time and skill-intensive approaches out there. Investors who use this technique need access to (usually very expensive) data providers, which they use to build models that can evaluate a firm’s long-term prospects. Since it takes a long time to research and pick quality stocks using this approach, investors’ portfolios tend to be less diversified. That means returns are tied to the performance of only a few stocks, so they carry higher risk.

Active mutual funds: These funds are a good fit for investors who would rather outsource major decisions to experienced fund managers. Professionals tend to have access to company management teams, data providers, and sector specialists – in short, high-quality information they can use to craft a nicely diversified portfolio. Investors who like this style can choose from a number of fund strategies, including ones based on market capitalization, growth prospects, or value. The downside is that minimum investment limits are common, and management fees and expenses can erode returns.

Active ETFs: Think of these funds as a cross between active mutual funds and passive ETFs. They give investors more control over their investments at a lower cost compared to a mutual fund, but also allow for quick diversification and a hands-off approach similar to passive ETFs. Like passive ETFs and ordinary stocks, they can be easily bought and sold on the market exchange.

Your style can change over time, and will likely evolve due to a range of factors including your investment horizon, risk tolerance, investment experience, investment goals, level of time commitment, and desired level of control.

What is TPP investment platform? 💡

TPP is an active investment platform that grants retail investors access to advanced trading strategies, the likes of which are usually reserved for institutional investors. Founded in 2020, TPP set out to disrupt the traditional wealth management industry by offering active investing strategies at a fraction of their regular cost. Investors can pick a strategy on the platform and auto-trade it by paying a fixed fee between US$75 to US$100 per month. Most strategies require a minimum investment amount of between US$25,000 and US$100,000. And naturally, the bigger your initial investment, the smaller the proportional cost. Because TPP charges an absolute monthly fee regardless of how much you invest, the platform is incentivized to deliver a market-beating performance.

The trading strategies offered on the platform fall into three broad categories:

1. Trackers. These track all the major global indexes like passive ETFs, but because they’re leveraged, returns and losses can be magnified. This strategy is the least trade-intensive of the three because the traders don’t buy or sell often.

2. Long or flat. The aim of this technique is to make a return when the market is either flat or on the rise, relying on accurate timing of the market to exit positions or pause until a better opportunity presents itself.

3. Active long or short. This is the most speculative and active strategy, suitable for those with a high risk tolerance. Traders buy or sell specific markets at different times in a bid to profit from market moves.

Your choice of strategy will depend on your risk appetite and financial goals. Trackers could be a nice fit for those with a low risk appetite who still want to moderately outperform the market. Active long or short strategies may be better for investors with a higher risk appetite and loftier return goals. For those who believe the market can keep rising for some time, a long or flat strategy might be the way to go.

No matter whether you’re a fan of active mutual funds or ETFs, you’ll find a technique that suits you within TPP’s broad spectrum of trading strategies. And remember, you can start by building your portfolio up with different strategies, starting with trackers and advancing to more “active” strategies.

How does TPP work?

The list below shows a quick overview of the minimum capital requirement for each of TPP’s strategies, along with its annual return, worst drawdown, and win-loss ratio.

Screenshot of TPP’s strategy list.
Screenshot of TPP’s strategy list.

Here’s an example of the stock tech strategy. You can see when the strategy was initiated, its monthly performance, how closely returns track the S&P 500, and the overall volatility of the strategy.

Screenshot of the stock tech basket strategy.
Screenshot of the stock tech basket strategy.

The trading record provides you with greater detail about all the trades executed for this strategy, letting you know what’s going on in your portfolio.

Screenshot of the trading record of the stock tech basket strategy.
Screenshot of the trading record of the stock tech basket strategy.

You can also find a more detailed description of the strategy’s focus and goals. TPP expects its traders to outperform their market benchmarks by at least 1.5x annually.

Screenshot of the stock tech basket strategy.
Screenshot of the stock tech basket strategy.

You can also create a watchlist portfolio to simulate the strategies you’re interested in.

Screenshot of a sample simulation account.
Screenshot of a sample simulation account.

Risks and considerations

As with all investments, there are risks involved. Compared to passive strategies, active trading strategies tend to be more volatile, and returns are mostly dependent on a trader’s ability to time the market. To create a diversified portfolio, you have to ensure your investments are split across different markets and asset types. You might consider adopting a core-satellite approach to achieve that. Depending on your risk tolerance, that means allocating between 60 and 80% of your portfolio to safer index funds, and the rest to active strategies. This ensures your portfolio has a core, stable base that is diversified enough to withstand any sharp market downturns. As always, it’s important you fully understand the risks involved when you invest, and how much risk you can afford to take.

This guide was produced by Finimize in partnership with TPP.

Check out TPP’s mini-website at finimize.com.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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