How Passive Investing Outdoes Active Investing
When it comes to passive investment, using different portfolio of index funds can be a great strategy. Although it might be too complicated or detailed in the surface, it is worth the process as it concerns a majority part of your assets. Nothing is too much with regards to investment.
How do the public defines passive investment? It is the opposite of active investment since the investor does not have to track his investments all the time.
Experienced investors defined passive investment as a strategic move in investment where there is no required participation to regular investment activities such as buying or selling stocks. Passive investors would acquire stocks or invest in a business far longer than those who are doing active investment.
Passive investing is commonly known as couch potato strategy whereas in some places, it is called buy and hold strategy. The basics strategies for passive investing are accurate research, diversified portfolio and a lot of patience. This is the exact opposite to active investment where investors would focus on the short-term fluctuations of the stock market to earn money. Passive investors depend their profit through 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. If active investors buy and sell stocks frequently, passive investors acquire multiple assets or asset indexes from a broad sectors in the market where the asset classes are producing average returns for the investor. The information needed by the passive investors are entirely different from the information which active investors are using. They acquired their portfolio asset indexes that meet the standard risk and return ratio backed by empirical studies. The asset classes are then re-balanced after a period of time based on the assessment of the investor.
The main focus on active investment is to search the best deals in the stock market through the superior human intelligence of the investor. Active investors are still dominating the stock market nowadays due to the attraction of fast income. 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. In order for them to achieve their goals, they would actively search for valuable information which they can use to circumnavigate the complex trading systems.
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. Experts recommend investors to secure a reliable results from the empirical research for an efficient passive investment.