Active Investing vs Passive Investing | Summary and Q&A

TL;DR

Active investing involves trying to outperform a benchmark, while passive investing aims to match the benchmark's performance.

Key Insights

• 💓 Active investing aims to beat a benchmark, while passive investing focuses on matching the benchmark's performance.
• 👨‍🔬 Active investing carries the risk of underperformance if research is incorrect.
• 😘 Passive investing has lower fees and requires less research but will not outperform the benchmark.

Transcript

broadly speaking there are two types of investing passive investing and active investing let's have a quick look at each along with the pros and cons active investing is when the investor tries to beat the benchmark so let's imagine your goal is to outperform the sp500 perhaps you're going to use a value strategy or a growth strategy either way you... Read More

Questions & Answers

Q: What is active investing?

Active investing is when an investor tries to outperform a benchmark by researching and picking individual stocks.

Q: What is passive investing?

Passive investing is when an investor aims to match the performance of a benchmark by buying index funds or ETFs that track the benchmark.

Q: What are the pros of active investing?

Active investing gives investors a chance to outperform the benchmark and can lead to useful insights if research is accurate.

Q: What are the cons of active investing?

Active investing carries the risk of underperformance if research is wrong and generally has higher fees and transaction costs compared to passive investing.

Q: What are the pros of passive investing?

Passive investing has lower fees, requires less trading, and allows investors to easily match the performance of a benchmark.

Q: What are the cons of passive investing?

Passive investors are unable to outperform the benchmark and will experience the same downturns or upturns as the market.

Q: Can an investor be both active and passive?

Yes, an investor can create a satellite portfolio with a core holding in a passive investment like an index fund and individual stocks to attempt to outperform the benchmark.

Q: What are the benefits of having a satellite portfolio?

A satellite portfolio allows investors to potentially outperform the benchmark with individual stock picks while also having a stable core holding to minimize losses.

Summary & Key Takeaways

• There are two main types of investing: active and passive.

• Active investing involves researching and picking individual stocks to beat a benchmark like the S&P 500.

• Passive investing involves buying index funds or ETFs to match the performance of a benchmark like the S&P 500.