Active Vs. Passive Investing, What Camp Are You In???
Passive investing is an investing approach that monitors a chosen market-weighted asset or portfolio with no involvement from you. Passive investing is popular in the equity markets with index funds tracking a particular stock index. If done right, passive investing can lead to substantial profits for years to come without requiring your involvement.
Active investing is an approach to stock market investing where the investor makes certain investments with the goal of outperforming an a particular index or benchmark. With active investing, there is an manager who makes recommendations about which shares to buy and sell.
Active investing requires an active manager and periodic monitoring to ensure that portfolio objectives are being met, while maintaining a healthy risk level.
The most important factor in active investing is the selection of stocks.Stock selection should be based on the ability of an individual stocks to make a good return. In theory, good fund management and good active investing practices can result in above average gains with little or no risk.
We all know Warren Buffett, although he is a buy and hold guy, he's consider an active investor...just look at all the moves he made this year. However, not many people know Jack Bogle. Jack unfortunately passed away in early 2019, but he was the the founder of The Vanguard Group and is considered the "godfather" of index funds. However, both approaches have more in common than you would think.
Buffett practiced and preached to several generations the appeal and perils of stock picking. But he has long advised ordinary investors to index, intends for his wife’s bequest to be invested in an index, and won a high-profile bet favoring the index over a stock-picking hedge fund (after fees).
Bogle wrote his college thesis defending indexing, founded one of the most successful index funds, and spent his adult life as the method’s champion. But he endorsed Buffett’s value investing approach and, a few months before he died in January 2019, wrote a Wall Street Journal article warning of the perils of indexing when index funds wield enormous concentrations of power.
Some investors are best suited for passive investing, especially those who are comfortable sticking with the basics of stock ownership. While some investors are better suited for actively managing their portfolio and periodic making changes based on their performance goals and level of risks. Personally, in recent years, I have taken an approach that combines both methods as an hybrid approach works best for me.
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