Passive Versus Active Investing
Individuals that are new to investing may find the landscape intimidating and difficult to navigate. Simply search “how to start investing” and you will find everything from stock pickers, equity advice, which platform to use and the list goes on. A good place to start is by identifying what your investment objectives are. The odds are you are saving for retirement and building a nest egg to live off of once you’ve concluded working. However, there are individuals looking to try and boost returns through entering and exiting trades. What these two methods of investing are known as are passive and active investing.
Let us start with active investing, which is a well-known investment style. Put simply, active investing is an attempt to time the market movements and adjust your portfolio through active management. This may include moving in and out of cyclical positions, riding the momentum of equities, or trying to time general market bull and bear runs.
While this method has proven to generate solid returns, many individuals fail over the long run, averaging less than the overall index such as the S&P 500. However, that is not to say that active investing can’t provide benefit to a portfolio. There are many funds out there that utilize active investing to generate a certain return with certain parameters.
If you are new to investing, it may be a smarter choice to ease into the proverbial financial waters through passive investing, which has been proven through research to consistently outperform active investing over the long term.
Passive investing is a style of investing that is defined as putting your money into a few select funds or equities and leaving your money there over a long period of time. For example, you may find an S&P 500 index fund you invest in over 30 years without changing funds, this is passive investing.
The benefits to passive investing are you have little to manage. When selecting funds to invest in, the legwork comes at the beginning when selecting the fund. After that, you simply have to monitor returns and the fund manager for consistency and if the fund is meeting your objectives. Index investing is one of the easiest ways to passively invest, with several different providers on the market. Some of the well-known names include Vanguard and SPDR ETF’s.
Whether you are new to investing or a seasoned veteran, it is important to define your investing style and understand the tactics involved. This industry does not have a one size fits all and you should consider your investment options carefully. Consult with your financial advisor and formulate the best game plan for you. Active or passive, there is a style of investing to fit your needs.
Originally posted on www.YoungFreelancing.com