Differences between active and passive investing

Bondora video

When making investments, there are two main strategies to choose from: active and passive. There’s much debate about which strategy is better, as there are advantages and disadvantages to both. There’s no right or wrong; it all depends on what you want from your investments.

To help you decide which approach is best for you, we’re going to highlight the 5 differences between active and passive investing.

1. Level of involvement

Active investing is a hands-on approach, taking advantage of short-term price fluctuations by pivoting in or out of investments. In contrast, passive investing is a long-haul strategy that involves less buying and selling. Go & Grow is an excellent example of easy, passive investing.

2. Expertise required

To have an effective strategy, active investing requires thorough analysis and expertise to know when to buy or sell an investment. On the other hand, the passive strategy does not involve ongoing research.

3. Their goals

The goal of passive investing is to match the market return, whereas the active strategy is to beat it or outperform a given benchmark.

4. Range of potential returns

Investors that use the active strategy have a wider range of potential returns. Active investing has greater risks and the potential to generate higher returns as compared to the passive approach.

5. Fees

Passive investing tends to be more cost-effective since it is a buy-and-hold strategy. With active investing, transaction costs for buying and selling as well as portfolio management fees can add up quickly.

Know of more differences between active and passive investing? Share them in the comments!

Thanks for watching, keep investing, and bye for now.

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