Active vs Passive Investing
Have you really thought about whether you should active invest or passive invest?
Here is a thread on active vs passive investing that might spike some of your thoughts 👇👇
Have you really thought about whether you should active invest or passive invest?
Here is a thread on active vs passive investing that might spike some of your thoughts 👇👇
What are active and passive investing?
Active investing refers to you picking your own investments (stocks, bonds, gold, currencies etc.) or you paying a professional to do the work for you.
Passive investing means you buy an index fund regularly for a long duration.
Active investing refers to you picking your own investments (stocks, bonds, gold, currencies etc.) or you paying a professional to do the work for you.
Passive investing means you buy an index fund regularly for a long duration.
What are the goals of active and passive investing?
Active investing = beat the market 👊
Passive investing = obtains returns that equal the market returns 🤝
Active investing = beat the market 👊
Passive investing = obtains returns that equal the market returns 🤝
Benefits of active investing
✅ Potentially beating the market
✅ Greater flexibility
✅ Better for niche markets
✅ More fun & interesting
✅ Potentially beating the market
✅ Greater flexibility
✅ Better for niche markets
✅ More fun & interesting
Downside of active investing
❌ Potentially losing to the market
❌ More risks & pressure
❌ You may be wasting your time
❌ It is hard to beat the market
❌ Requires skills & patience
❌ Higher fees & taxes (if you trade frequently)
❌ Potentially losing to the market
❌ More risks & pressure
❌ You may be wasting your time
❌ It is hard to beat the market
❌ Requires skills & patience
❌ Higher fees & taxes (if you trade frequently)
Benefits of passive investing
✅ No need to research
✅ Good transparency
✅ Steady returns
✅ Easy
✅ Lower fees & Tax efficiency
✅ Less pressure
✅ You get what the market returns
✅ No need to research
✅ Good transparency
✅ Steady returns
✅ Easy
✅ Lower fees & Tax efficiency
✅ Less pressure
✅ You get what the market returns
Downside of passive investing
❌ You cannot beat the market
❌ Can be boring at times
❌ You cannot beat the market
❌ Can be boring at times
As we can see, there are actually many benefits of passive investing, and rather limited downsides. You DO NOT need to force yourself to pick stocks & funds if you don't want or feels like you are not good at it.
Passive investing is a great strategy for most people. I would say unless you love to research and are more risks loving, it would probably be wise to passive invest.
Active investing on the other hand, is based on the single greatest advantage - 'potentially' beating the market.
Therefore, if you have invested for 10-20 years + and has beaten the market, its a good idea to active invest, otherwise, passive invest may be the better way
Therefore, if you have invested for 10-20 years + and has beaten the market, its a good idea to active invest, otherwise, passive invest may be the better way
According to Morningstar, only 24% of all active funds beat the average of their rival index funds in the decade ended June 2020. Beating the market over the long run can be hard even for professionals.
Therefore, you really need to think about the merits for active investing, if you are in only for the money, instead of you enjoying the investing process and having fun.
As @AswathDamodaran has said, if you spent tremendous time & effort into active investing, but at the end of the your life, someone tells you, you underperformed the index, and if you are still ok with that, then consider active investing. Otherwise passive is the way to go.
I am not in anyways saying that active investing is bad, but I just want spark some thoughts and have you thoroughly asks yourself, is active investing really better for you?
Do you active invest or passive invest? Why do you active/passive invest?
Let me know! 👇👇
Let me know! 👇👇
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