The difference between active and passive investing

The difference between active and passive investing

Investing money is not a one size fits all kind of scenario. For starters, a lot depends on your goals. Are you looking to cash out the investment in 5-10 years for a down payment on a house? Are you setting up a college fund for your children that will be used in 18 years? Is this an investment for your retirement that will be used 40 years from now? Each investment strategy needs to be tailored to your goals. Within these options there are two main classifications for investments: active and passive.

Active investing involves trying to outperform an index, for example the S&P 500. Your broker will look at what the market is doing, and buy or sell as a reaction to what is happening. This means more activity, so your broker will charge a higher commission fee. With passive investing, your portfolio follows the index and tries to match it. This is more of a “hands-off” strategy, so management fees are lower.

Over the last few years, passive investments have become more popular, as they’ve performed well while many active investment brokers have struggled to produce better returns. Even Warren Buffett advocates a passive investment portfolio, citing its consistency. Still, if you want to take a bit more risk and think you’ve found a broker with the right strategy, an active investment portfolio can certainly pay off. There are also newer funds emerging that combine the best aspects of each strategy.

Featured Posts

Ottawa Wants To Invite Chinese Students, Tourists and Workers to Canada

Canada is soon set to receive up to twice the number of the Chinese tourists, students, workers, and travelers. Currently, there are a paltry five visa offices in China, but the number is set to triple over the next couple of months. These centers will be located in Chengdu, Nanjing, Wuhan, Jinan,…

Chinese Development Bank Approves First Loans

The outcome of Britain’s referendum that was held last week is expected to have an impact on the world economy in the coming days. Nonetheless, Asian Infrastructure Investment Bank, a Chinese based development bank, started to offer loans to clients on June 24th. The management team stated…

New Jersey Family Wins $429.6 Powerball

The Powerball has just made a 70-year-old woman, Perlie Smith, $429.6 million richer. On May 13, 2016, Ms. Smith was identified as the Powerball jackpot winner. She has seven children, of whom Valerie Arthur is the eldest. Arthur just retired as a prison administrator for the Department of…

Saudi Arabia wants to buy more US refineries

Saudi Arabia is one of the most controversial, but richest countries on the planet. The country developed quickly immediately after discovering oil. Now they are providing fuel for many countries. The producers in Saudi Arabia also want to expand their business by buying more US refineries. Why now?…

What is a mutual fund?

When it comes to your money, it is very important to be informed. You have to know exactly how to manage your funds and how you can use your money to increase your income. It is very tempting to risk everything you have and hope for the best, but it is really not a good idea? What is the best way to…

What is a reverse mortgage?

Homeowners who are 62 or older can access money based on the value of their mortgage-free home. It is another word for a loan but it doesn’t have to be repaid until you sell your home or move. A reverse mortgage means that you receive a certain amount of money that you can use to help your…