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Nope. I’m not talking about your bedroom adventures, silly.

Neither am I talking about your exercising routine.

We are gonna discuss a more serious topic - your investment approach.

 

 

 

 

Go The Active Or Passive Way…?

 

In investing, there are two kinds of approach to stocks investment - the active and passive route.

Active investors are those that take a keen management role for their portfolio. They assume responsibility over their portfolio’s performance.

They frequently pore over financial statements, monitor the stock market news and peer at the stock prices every now and then.

For investors that may not have the time or knowledge, they pass the management over to their broker or fund manager. In any case, the money is still managed actively.

All these are done with one aim in mind - to beat the stock market index. Think Straits Times Index and the S&P 5000.

Passive investors, on the other hand, do not worry about beating the market index. After all, 90% of fund managers and retail investors fail to outperform the index.

So, if you can’t beat it, why not join it? That is the attitude of passive investor - to get returns that mirrors the stock market index’s performance.

They do so by investing in index funds or securities included in the particular stock or bond index.

 

Which Style Should You Go For?

 

There are advantages and disadvantages of both the active and passive approach.

For active management approach, you can depend on the analysis of expert fund manager to steer you in the right direction.

If you want to do it your way, then you have the power to choose your stocks, as well as enter and exit the market as you wish. You have that kind of flexibility passive investing doesn’t offer.

And if you choose your stocks well, coupled with a sound risk management plan, there is always a possibility of beating the index.

However we still have to be objective and analyze all angles.

Active investment does have its disadvantages. You will incur higher fees and operating expenses. Let’s not forget, we are all human. We make mistakes. Emotions will come into play. Judgement will be clouded. Can you handle these inevitable issues? 

Also, there are many investment methodologies that may come into conflict with the market condition which will affect your returns. For example, a value investing approach may not work as well in a booming bull market.

Comparatively, passive investment’s expenses are minimal. Best of all, you can set and forget. That is as autopilot as you can get. The lazy man’s style, without the worries of beating the market when you are just riding on it’s coattail.

Then again, your performance will always be dictated by the index. You will *NEVER* have the chance to beat the market. In addition, you do not possess the same kind of control active investing give.

 

Where Do You Stand?

 

With everything laid out, now is the time to make a decision. Do you see yourself as an active or passive investor? Think carefully. And hard.

There is no one sized fits all. Go with the one that fits your risk profile and personality best.

If you are wondering, at StocksForGrads, we believe in active management - done in DIY style!

But whatever your choice, we are always be glad to have you on board, as we walk the road together to investment success!

 

Play It Smart,

Jag Foo

Chief Editor

StocksForGrads.com

 

 

This article is available as a PDF Download

 

   “Ask Yourself Today - Are Active Or Passive?” PDF Download“

 

 

tag:Active Investment Investing Basics Passive Investment Stocks Stocks Investment StocksForGrads

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