For investors, whether working with an advisor or taking a DIY approach, it’s important to understand the fundamental differences between two common investing practices - active and passive.
What Is Active Investing?
The general idea of active investing involves utilizing different financial tools with a goal of "beating the market" or outperforming specific standard benchmarks.
In order to do this, investors may follow investment trends and buy or sell as investments rise or fall. Investment advisors may actively invest in assets such as:
- Mutual funds
- Exchange-traded funds (ETFs)
- Portfolios of stocks, bonds and other holdings
As the name implies, active investors are continuously purchasing investments and monitoring their activity in effort to exploit profitable conditions.
What Is Passive Investing?
With passive investing, the goal is to maximize returns while minimizing the amount of buying and selling.
Using this strategy, investors may buy and hold their stocks and bonds in passive funds or passive index funds which rise and fall to match the performance of certain indexes. Because of this, passive investments are not meant to beat or outperform the market, but rather match the market’s performance.
Which Is Right For Me?
There are pros and cons to each type of investment. When you meet with our team, we work with you to understand your priorities, desired level of personal involvement, risk level and long-term goals. The conversations we have help our team understand the best options for you and your unique situation. Often we find a mix of both active and passive investments to be the right move for diversifying portfolios.