How Passive Investing Outdoes Active Investing
A lot of experts in investment recommend the use of diversified index funds whenever someone decides to engage in passive investment. It might sounds robotic to some but for those who are serious in investing their hard-earned cash, it is a successful move. This is a must if you are serious in investing your money.
How do the public defines passive investment? For some people, passive investing is a way of increasing your assets without doing much personally.
According to experts, one of the exact definitions of passive investment is investing with little involvement to purchasing or selling activities. Stocks or shares are purchased by the investor for a purpose of allowing the investment to grow in the long run.
Passive investing is commonly known as couch potato strategy whereas in some places, it is called buy and hold strategy. Aside from doing complete initial research and using diversified portfolio, passive investors require a great deal of patience for this strategy. This is not the case for active investors who are being opportunistic to the changes in the stock market. It is a notion that passive investment would be more profitable if it is a long-term investment.
Those strategies used by active investors such as distinguishing attractive and unattractive security, forecasting stock prices and time markets are not useful in passive investment. However, the focus in passive investment is a diversified asset classes or indexes in which each asset can produce average returns for the investor instead of just focusing on a couple of stocks which active investors do. Passive investors are also relying on market information which is not important for those who are engaging in active investment. Empirical research for possible asset indexes is the main foundation for passive investors when they try to weigh the potential risks and returns of an asset class. Since they are investing on a diversified asset classes, they would assess their investments in a specific period where they would make the necessary adjustment and re-balancing of the asset class.
Meanwhile, active investors are primarily securing their earnings through getting the upper hand on the buy and sell activities in the market using their intelligence. The potential of making money quick attracts the investors to rely on active investment. Active investors would look for attractive stocks which they can hold until there are better deals which they can make and sell the stocks they have at the right time. The basic principle of active investment is to earn more than what can be gained from average market returns. Those engaging in active investment would give importance to valuable information that are necessary to manage the stocks secured in the financial market through the trading systems and achieve their goals.
People who want a secure and less risk investment would prefer passive investment for their assets instead of the unpredictable and ever-changing active investment. Remember to have a thorough market research, be selective on securing assets and be patient to succeed in passive investment.