November 5, 2019
Mellody Hobson offers her perspective on the American dream, the benefits of active value investing, and being a financial literacy evangelist.
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An actively managed portfolio is more risky than a passively managed portfolio that replicates an index because it contains fewer stocks than its benchmark index. Indexes are unmanaged, and an investor cannot invest directly in an index. However, investors may invest in an index fund, which mimics the composition of an index. There are lower costs associated with index funds, as compared to actively managed funds.
A growth investment strategy seeks stocks that are deemed to have superior growth potential. Growth stocks offer an established track record and are perceived to be less risky than value stocks. A value investment strategy seeks undervalued stocks that show a strong potential for growth. The intrinsic value of the stocks in which a value strategy invests may be based on incorrect assumptions or estimations, may be affected by declining fundamentals or external forces, and may never be recognized by the broader market.