---
title: Actively Managed Portfolio | Definition, Process, & Active vs. Passive
description: There is a lot of talk about actively managed portfolios, but what exactly is an active management process? Is it right for you and your investment goals?
image: https://www.carboncollectiveinvesting.com/hubfs/Actively_Managed_Portfolio.png
---

[![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo-white.4f6047d4.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/)

- About
- Employers 
    - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k)
    - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool)
- Individuals 
    - [FAQ](https://www.carboncollective.co/en/knowledge/faqs)
- [ETF](https://www.carboncollectivefunds.com/)
- Learn 
    - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing)
    - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics)
    - [Blog](https://blog.carboncollective.co/)
    - [Tools](https://tools.carboncollective.co/calculator/)
- Log in 
    - [Carbon Collective](https://app.carboncollective.co)
    - [Altruist](https://app.altruist.com)

[Talk to a human](https://ask.carboncollective.co/f4o5dylkg)

[Sign up](https://app.carboncollective.co/sign-up)

[Log In](http://app.carboncollective.co/)

[![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/)

- About
- Employers 
    - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k)
    - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool)
- Individuals 
    - [FAQ](https://www.carboncollective.co/en/knowledge/faqs)
- [ETF](https://www.carboncollectivefunds.com/)
- Learn 
    - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing)
    - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics)
    - [Blog](https://blog.carboncollective.co/)
    - [Tools](https://tools.carboncollective.co/calculator/)
- Log in 
    - [Carbon Collective](https://app.carboncollective.co)
    - [Altruist](https://app.altruist.com)

[Talk to a human](https://ask.carboncollective.co/f4o5dylkg)

[Sign up](https://app.carboncollective.co/sign-up)

[Log In](http://app.carboncollective.co/)

**[Home](https://www.carboncollectiveinvesting.com/) > [Sustainable Investing](https://www.carboncollectiveinvesting.com/sustainable-investing) >** Actively Managed Portfolio

# Actively Managed Portfolio

![](https://www.carboncollectiveinvesting.com/hubfs/Brooke%20Tomasetti.png)

 Written by Brooke Tomasetti  |  Reviewed by [Subject Matter Experts](https://www.carboncollectiveinvesting.com/subject-matter-experts)

Updated on October 1, 2024

 Fact Checked

 Why Trust Carbon Collective?

### Table of Contents

An actively managed portfolio is an investment portfolio where the individual investments are chosen and managed by a human investment advisor.

This means that the investment advisor actively buys and sells investments in the portfolio, instead of following a preset, static [asset allocation](https://learn.financestrategists.com/finance-terms/asset-allocation/).

The actively managed portfolio often consists of individual stocks and bonds, or mutual funds that are actively managed by an investment manager.

This is in contrast to a passively managed portfolio, which is an investment portfolio where the individual investments are chosen by a computer algorithm and not actively managed by a human.

## **What is Active Management?**

Active management is a process where a [human actively buys and sells investments](https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/active-management/), instead of letting a computer choose the asset allocation.

This includes what stocks to buy, when to buy them and when to sell them. The advantage of this style is that it gives you more control over your portfolio and allows you to take advantage of opportunities as they arise.

The goal of active management is to produce higher returns than what you would get from investing in a passive portfolio.

Active management is often used when investors believe they can identify specific investments that will outperform the market as a whole.

While this may be true in some cases, it is not always the case that an actively managed portfolio will outperform a passively managed one.

In fact, actively managed portfolios often have higher fees than passively managed ones, which can eat into your returns.

## **Active Management Process**

The active management process is a method of investing that actively buys and sells investments based on the individual's own judgment.

It usually involves three main steps:

### **![Active_Management_Process](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/Active_Management_Process.png?width=1920&name=Active_Management_Process.png)**

### **1. Planning**

This step involves analyzing and identifying the investor's goals, risk tolerance, and investment objectives.

From this risks and objectives can be determined and a plan can be put together to achieve these goals.

### **2. Execution**

This step involves the implementation of the plan. Strategies were integrated into the plan in order to achieve goals and objectives.

The process involves actively managing a portfolio of individual investments such as stocks, [bonds](https://www.carboncollectiveinvesting.com/sustainable-investing/bonds), or mutual funds.

### **3. Feedback**

This step involves actively monitoring and evaluating the progress of the plan. Adjustments are made to the plan as needed in order to achieve desired results.

## **Advantages and Disadvantages of Active Management**

### **The advantages of active management include:**

- Greater control over your portfolio, with actively managed portfolios you have more control over what investments are included and how they are managed.
- Ability to take advantage of market opportunities, active management allows you to capitalize on opportunities as they arise.
- Greater potential for higher returns, actively managed portfolios have the potential to generate higher returns than passively managed ones.
- More personalized service, with an actively managed portfolio you typically receive more personalized service from your investment advisor.

### **The disadvantages of active management include:**

- Higher fees,  actively managed portfolios often have higher fees than passively managed ones.
- Greater risk, actively managed portfolios are typically riskier than passively managed ones.
- Greater time commitment, actively managing a portfolio takes more time than passively managing one.
- Less diversification, actively managed portfolios are often less diversified than passively managed ones.
- The increased possibility of underperforming the market, there is a greater chance that an actively managed portfolio will underperform the market as a whole.

## **Active vs Passive Management**

So, what is the difference between actively managed and passively managed funds?

An actively managed fund is one that actively buys and sells investments based on the individual's own judgment.

A passively managed fund is one that follows an index or other predetermined set of criteria for buying and selling investments.

The main differences between [active management vs passive management](https://www.investopedia.com/news/active-vs-passive-investing/) are:

- Active management is based on the individual's own judgment, while passive management follows an index or other predetermined set of criteria for buying and selling investments.
- Active management actively buys and sells investments based on their own judgment, while passive management typically only invests in the stocks comprising a specific index (like the S&P 500).
- Actively managed funds have the potential to outperform the market, while passively managed funds have the potential to match the returns of the market.
- Active management involves more risk than passive management, as actively managed portfolios are typically riskier than passively managed ones.
- Passive management is usually cheaper than active management, as actively managed portfolios often have higher fees than passively managed ones.
- Actively managed funds have a greater chance of underperforming the market, while passively managed funds are more likely to outperform the market over time (especially when considering fees).

## **Which is better?**

When it comes to actively managing your portfolio vs. passively managing it, there is no right answer. Both approaches have their pros and cons, and it ultimately comes down to what is best for you.

If you are looking for potential for higher returns, greater control over your portfolio, and more personalized service, then active management may be a good option for you.

However, if you are looking for lower fees, less risk, and simpler investing options, passive management may be the better choice for you.

No matter which approaches you choose, make sure to do your research and talk to a [financial advisor](https://www.carboncollectiveinvesting.com/sustainable-investing/8-different-titles-of-financial-advisors-their-specialties) before making any decisions.

## **The Bottom Line**

An actively managed portfolio is an investment portfolio that is actively managed by you or your investment advisor, while a passively managed portfolio follows an index or other predetermined set of rules for investing.

Active management is the process where an investor or fund manager makes decisions about which investments to buy and sell in order to beat the market.

There are pros as well as cons to actively managing your portfolio. It is up to you to determine what's best for you and your financial situation, but either path can be a successful one if done properly.

## **FAQs**

### **1. What is active management?**

Active management is the process where an investor or fund manager makes decisions about which investments to buy and sell in order to beat the market. This involves actively buying and selling securities based on their own analysis of the market.

### **2. What percentage of actively managed portfolios beat the market?**

There is no definitive answer to this question. Since 2022, the percentage of actively managed funds that have outperformed the S&P 500 over the past 15 years has dropped to 10%. In certain circumstances this percentage can increase, but not consistently.

### **3. What happens when actively managed portfolios do not beat the market?**

When actively managed portfolios do not beat the market, investors can experience lower returns than if they had invested in a passively managed portfolio which followed an index. This is because actively managed portfolios typically have higher fees than passively managed ones.

### **4. Which has lower risk: actively managed or passively managed portfolios?**

Passively managed portfolios have less risk than actively managed ones, as they are typically more diversified. This is because actively managed portfolios typically invest in only a limited number of securities, while passively managed ones hold many different types of investments.

### **5. Why does passive management have lower fees?**

Passive management has lower fees because actively managed portfolios have to pay investment advisors to actively manage the portfolio. This involves making frequent buy and sell decisions, which leads to higher fees. While passively managed ones follow an index or other predetermined set of rules for investing.

### Related Topics

- [Sustainable 401(k) Plan](https://www.carboncollective.co/401k)
- [Sustainable Investing](https://www.carboncollective.co/sustainable-investing/)
- [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics)
- [Retirement Glossary](https://www.carboncollective.co/sustainable-investing/retirement-planning-glossary)
- [Best Retirement Plans](https://www.carboncollective.co/sustainable-investing/the-10-best-retirement-plans)
- [Wealth Manager Vs Financial Advisor](https://www.carboncollective.co/sustainable-investing/wealth-manager-vs.-financial-advisor)

![Attend Our Next Webinar](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-webinar.12af7b6e.svg)

### Attend Our Next Webinar

Join our next Sustainable Investing 101 webinar, get our favorite DIY options, and walk through how we build our portfolios.

[Watch Now](https://www.carboncollective.co/sustainable-investing-webinar-green-retirement-month)

![Get Our Newsletter](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-demo.6ed28722.svg)

### Get Our Newsletter

Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account.

Join Newsletter

![close-typeform](data:image/gif;base64,R0lGODlhEQARAIAAAODn7P///yH5BAEHAAEALAAAAAARABEAAAIqBIKpab3v3EMyVHWtWZluf0za0XFNKDJfCq5i5JpomdUxqKLQVmInqyoAADs=)

![Talk To A Human](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-chat.49d48c5b.svg)

### Talk To A Human

Joining a new investment service can be intimidating. We’re here for you. Click below to email us a question or book a quick call.

[Ask a Question](https://ask.carboncollective.co/f70pooobq)

Topics

## Sustainable Investing Topics

View our list of some topics below.

 See More

- Portfolios 
    - [Performance](https://www.carboncollectiveinvesting.com/returns)
- About 
    - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k)
- Learn 
    - [FAQ](https://www.carboncollective.co/en/knowledge/faqs)
    - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing)
    - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics)
- Contact 
    - [Contact us](mailto:hello@carboncollective.co)
    - [Legal](https://www.carboncollective.co/legal)
    - [Privacy Policy](https://www.carboncollectiveinvesting.com/hubfs/2022-11%20Carbon%20Collective%20Privacy%20Policy.pdf)
- [Back to top](https://www.carboncollectiveinvesting.com/sustainable-investing/actively-managed-portfolio#top-of-page)

DISCLAIMERS:

Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective"), an SEC-registered investment adviser. A copy of Carbon Collective's current written disclosure statement discussing Carbon Collective’s business operations, services, and fees is available at the SEC’s investment adviser public information website – [www.adviserinfo.sec.gov](https://adviserinfo.sec.gov/firm/summary/310129) or [our legal documents here](https://blog.carboncollective.co/legal-documents/).

The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Carbon Collective does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Investments in securities: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Carbon Collective's charges and expenses. Carbon Collective's internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere. For more details, see our Form CRS, Form ADV Part 2 and other disclosures. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Carbon Collective is not registered.

© 2026 Carbon Collective Corporation. All rights reserved.

×

#### Fact Checked

Carbon Collective partners with financial and climate experts to ensure the accuracy of our content.

Our team of reviewers are established professionals with years of experience in areas of personal finance and climate.

They have contributed to top tier financial publications, such as Reuters, Axios, Ag Funder News, Bloomberg, Marketwatch, Yahoo! Finance, and many others.

This team of experts helps Carbon Collective maintain the highest level of accuracy and professionalism possible.

×

#### Why Trust Carbon Collective

 Carbon Collective is the first online investment advisor 100% focused on solving climate change. We believe that sustainable investing is not just an important climate solution, but a smart way to invest.

 We follow ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Much of our research comes from leading organizations in the climate space, such as Project Drawdown and the International Energy Agency (IEA).

 Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics.

 Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including MarketWatch, Bloomberg, Axios, TechCrunch, Forbes, NerdWallet, GreenBiz, Reuters, and many others.

 We strive to empower readers with the most factual and reliable climate finance information possible to help them make informed decisions. 

 }

```json
{
  "@context" : "https://schema.org",
  "@type" : "Organization",
  "alternateName" : "Carbon Collective",
  "contactPoint" : {
    "@type" : "ContactPoint",
    "areaServed" : "US",
    "availableLanguage" : "en",
    "contactType" : "customer service",
    "telephone" : "(650) 868-2697"
  },
  "logo" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png",
  "name" : "Carbon Collective Investing LLC",
  "sameAs" : [ "https://www.facebook.com/carboncollectiveinvesting/", "https://twitter.com/carbncollective", "https://www.instagram.com/carbon.collective/", "https://www.youtube.com/channel/UC769Y-F-L_B37kyQfdpvyXA", "https://www.linkedin.com/company/carbon-collective/", "https://www.crunchbase.com/organization/carbon-collective", "https://adviserinfo.sec.gov/firm/summary/310129", "https://www.wikidata.org/wiki/Q110243690" ],
  "url" : "https://www.carboncollective.co/"
}
```

```json
{
  "@context" : "https://schema.org",
  "@type" : "FAQPage",
  "mainEntity" : [ {
    "@type" : "Question",
    "acceptedAnswer" : {
      "@type" : "Answer",
      "text" : "Active management is the process where an investor or fund manager makes decisions about which investments to buy and sell in order to beat the market. This involves actively buying and selling securities based on their own analysis of the market."
    },
    "name" : "What is active management?"
  }, {
    "@type" : "Question",
    "acceptedAnswer" : {
      "@type" : "Answer",
      "text" : "There is no definitive answer to this question. In the past year, just under 42% of actively managed, large-cap U.S. funds beat the market. In the past 10 years, that figure drops to about 17.5%."
    },
    "name" : "What percentage of actively managed portfolios beat the market?"
  }, {
    "@type" : "Question",
    "acceptedAnswer" : {
      "@type" : "Answer",
      "text" : "When actively managed portfolios do not beat the market, investors can experience lower returns than if they had invested in a passively managed portfolio which followed an index. This is because actively managed portfolios typically have higher fees than passively managed ones."
    },
    "name" : "3. What happens when actively managed portfolios do not beat the market?"
  }, {
    "@type" : "Question",
    "acceptedAnswer" : {
      "@type" : "Answer",
      "text" : "Passively managed portfolios have less risk than actively managed ones, as they are typically more diversified. This is because actively managed portfolios typically invest in only a limited number of securities, while passively managed ones hold many different types of investments."
    },
    "name" : "4. Which has lower risk: actively managed or passively managed portfolios?"
  }, {
    "@type" : "Question",
    "acceptedAnswer" : {
      "@type" : "Answer",
      "text" : "Passive management has lower fees because actively managed portfolios have to pay investment advisors to actively manage the portfolio. This involves making frequent buy and sell decisions, which leads to higher fees. While passively managed ones follow an index or other predetermined set of rules for investing."
    },
    "name" : "5. Why does passive management have lower fees?"
  } ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "BlogPosting",
    "mainEntityOfPage": {
      "@type": "WebPage",
      "@id": "https://www.carboncollectiveinvesting.com/sustainable-investing/actively-managed-portfolio"
    },
    "headline": "Actively Managed Portfolio | Definition, Process, & Active vs. Passive",
    "description": "There is a lot of talk about actively managed portfolios, but what exactly is an active management process? Is it right for you and your investment goals?
",
    "image": "https://20345524.fs1.hubspotusercontent-na1.net/hubfs/20345524/Actively_Managed_Portfolio.png",  
    "author": {
      "@type": "Person",
      "name": "https://20345524.fs1.hubspotusercontent-na1.net/hubfs/20345524/Brooke%20Tomasetti.png",
      "url": "https://www.carboncollectiveinvesting.com/sustainable-investing/author/brooke-tomasetti"
    },  
    "publisher": {
      "@type": "Organization",
      "name": "Carbon Collective",
      "logo": {
        "@type": "ImageObject",
        "url": "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png"
      }
    },
    "datePublished": "2022-07-02",
    "dateModified": "2024-10-01"
  }
```