1. What passive investing is
Passive investing or passive management investment strategy, otherwise known as a “buy and hold,” aims to give investors a solid return by holding assets over the long term. As the market rises over time, investors take advantage of those gains. Rather than trying to beat the market by frequent trades in and out of stocks, a passive investor’s goal is to benefit from steady market growth and gradually build wealth with a diversified portfolio. A passive investment is therefore a good blueprint for saving for retirement.
2. The opposite of active management
An active investment approach is quite the opposite of passive investing. An active investor attempts to time the market and buy certain stocks that would provide above-market returns. In an active management strategy, investors frequently buy and sell stocks.
3. What about fees
Because stocks and other investments are held for many years, passive investors incur fewer fees. Conversely, investors actively managing a portfolio will be hit with frequent transaction charges.
4. Index funds
Index funds are a popular investment vehicle in a passive investment plan. An index fund attempts to match the performance of an market index, such as the S&P 500. Because index funds conduct fewer trades, fees are lower. On the other hand, index funds are not designed to outperform the market.
5. Mutual funds
A mutual fund pools money from shareholders to buy a collection of stocks, bonds, and other investments. With a mutual fund, you are getting a diversified portfolio managed by a professional money manager.
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