The Basics – Active Versus Passive Investing

Investing in the stock market can be broadly divided into two major categories, either Active or Passive investing. These approaches are polar opposite in approaches, and so have distinct advantages and disadvantages.

Passive investing merely tries to track or mimic the index that it is following. Now-a-days passive investing is computerized, resulting in very low fees for the fund, which can provide a huge boost in overall performance of passive funds versus active investing.

Active investing on the other hand uses an experienced a management team that actively trades, aiming to outperform the index/industry that it is following. Over the long term this is hard to do, however active investing may have its advantages in a strategy that attempts to keep investments within the hot sectors of the economy, and one that can actively make profit when the market is heading in a downward phase.