Industry insights

New active investors are losing 38% over 6 months. Here’s how you can avoid it.

  • October 05, 2020
  • Lauren Weatherall

Investing in the stock market can put new active investors in dangerous financial situations. To get a better idea of what strategy works best, we compared the average growth of new active investors to new passive investors over six months. Our data revealed that a large majority of active investors relying on their own investment strategies are losing money with impulsive stock picks and an abundance of misinformation. 

What we learned.

We discovered those who chose an active investment strategy averaged a -2.35% growth rate, compared with passive investors who averaged 12.64% growth over the same period of time. Those who followed the S&P 500 averaged a 34.91% growth over six months to win the heavyweight title over both strategies. 

For the aspiring active investor, this discovery shouldn’t knock you out of the ring. 

What exactly is active investing?

Active investing strategies require a hands-on approach. The key to implementing a successful active investment strategy is access to the right information, reliable sources, strong analytical skills, and a deep understanding of the market. Without the right resources and experience, active investors are just left guessing. 

And passive?

Passive investors are playing for the long term and are not seeking to pounce on sudden fluctuations in the market. They will also participate in less buying and selling, and their strategy tends to target index funds or mutual funds. Passive investing strategies can offer safer stock picks and lean towards holding stocks over long periods of time. 

The takeaway.

While passive investing might seem like the smarter option for retail investors, if active investors have access to the right information, they can significantly increase their average growth over the same period of time. Using applications like Front or seeking the right consultation can help investors earn more and invest like a pro.