Learn to invest

Active vs. Passive Investing

  • October 30, 2020
  • Drew Ragosta

Every investor has a different philosophy. When new investors enter the market, it is important that they develop a fundamental understanding of where they can invest, and what type of strategy is best to utilize. The two conventional investment strategies are active and passive approaches. Below we discuss the difference between each and what investment strategy is best for you.

Active investing.

This hands-on approach to playing the market requires a more aggressive type of investor who is consistently keeping an eye on their portfolio. Active investors are constantly buying and selling stocks. A successful active investor practices and refines their analytical skills and is always in the know about what is happening around the world. Active investing is typically riskier than passive because it requires quick and accurate decision making. The goal of this approach is to beat mutual funds or index funds.

Passive investing.

As opposed to a hands-on approach, passive investors buy and sell far less frequently and usually invest in mutual or index funds. Passive investing is a big-picture approach and aims to maximize returns by minimizing buying and selling. Those who employ this strategy are patient and will hold a mutual fund for a long period of time before considering selling. Many people prefer a passive investing approach because it is far less costly, risky, and involves minimum trading. Famous investment tycoons like Warren Buffet are advocates for passive investment strategies.

What is best for you?

Before you decide, consider what type of investor you are. If you have the time to watch the markets on a regular basis and research different companies, active investing might work well for you. It is important to understand that active investing does require a strong, fundamental knowledge of investing and the stock market as a whole. New investors can fall victim to over-ambition and make critical mistakes that will cost them hundreds, if not thousands of dollars. If you have strong investment skills and a knack for research, active investing might be the best strategy for you.

Passive investing is great for the person who has some extra money to invest and doesn’t want to watch the markets all day. If you’re leaning towards following an index like the S&P 500 or are interested in mutual funds, passive is the way to go. Famous investors like Warren Buffet have made their careers and reputations utilizing passive investment strategies and new investors risk far less using this approach. You also won’t have to worry about buying and selling on a consistent basis.

Whether you’re a passive investor or an active investor, everyone can benefit from using Front as their investment strategist. Integrating Front with your brokerage account gives users access to vital information and recommended stock picks that will put the money back into their pockets. Check out www.getfront.com to learn more or download the free app today. Front is available for both IOS and Android users!