Active vs. Passive Investing?

Choosing Between Active and Passive:

The most suitable approach for you depends on your individual circumstances, your investment goals, risk tolerance, time horizon, whether you are a do-it-yourself-er. You’ll need to pay particular attention to the expense ratios of whatever fund choice you are investigating. The higher the expense ratio, the less money (especially over time) you will keep in your pocket.

• Active Investing may be suitable if: You believe you (or a skilled manager) can identify undervalued investments and consistently outperform the market, you are comfortable with potentially higher risk and volatility, and you are willing to pay higher fees for the potential for higher returns.

• Passive Investing may be suitable if: You prefer a simpler, hands-off approach, you prioritize diversification and lower fees, you are comfortable with market-average returns, and you have a long-term investment horizon. 

Important Note: Neither active nor passive investing guarantees specific returns. Any investment could result in total loss. If you use a financial advisor, inquire about his or her potential conflict of interest, whether they promote one fund family over another, and ask for fund info over the past twenty years.

Active Investing:

• Goal: Touted as out performing the market.

• Strategy: Involves frequent trading, in-depth research, and market timing in an attempt to capitalize on perceived market inefficiencies or short-term opportunities.

• Management: Typically requires a hands-on approach and can involve higher management fees due to the active research and trading involved.

• Risk/Return Profile: Has the potential for higher returns but also comes with increased risk and the possibility of under performing the market, especially over the long term. 

Passive Investing:

• Goal: To replicate the performance of a specific market index or benchmark, such as the S&P 500, rather than trying to beat it.

• Strategy: Involves a buy-and-hold approach, with minimal trading and a focus on long-term growth.

• Management: Requires less active management, resulting in lower fees and potentially greater tax efficiency due to reduced trading activity.

• Risk/Return Profile: Generally considered lower risk than active investing, as it aims to mirror the market's overall performance, but may also limit the potential for above-market returns.