Passive vs Active Investing Strategies – What Is the Difference?
- Active vs passive investing
- Passive investment strategies
- Active investment strategies
- Investing apps, brokerages, and other accounts
- Pros and cons
- The bottom line
Active vs passive investing
Passive investment strategies
Look for low expense ratios
Buy exchange-traded funds (ETFs)
Active investment strategies
Investing apps, brokerages, and other accounts
- Acorns – Micro investing app
- Ally Invest – Retirement funds and stocks
- Betterment – Robo advising with $0 minimum balance
- E*\TRADE – Active trading platform for DIYers
- Robinhood – $0 commission investing
- Stash – Fractional share investing
- Wealthfront – Diversified robo-investing
Pros and cons
Passive investing pros and cons
- Low fees
- Historically earn more than active investments
- You can set it and forget it
- Ideal for retirement funds
- A buy-and-hold strategy that can avoid market turmoil
- Often limited to a specific index or set of investments
- Small returns that rarely beat the market since they’re often set to track the stock market
Active Investing pros and cons
- Flexibility to buy stocks and indexes that you want
- Can hedge bets through short sales and put options to make money when stock prices fall
- Can exit specific stocks or sectors when risks become too big
- Tax management benefits when selling losing investments to offset taxes on big winners.
- Easier to invest in niche markets
- Fees of 1.5% that eat away at compounding and any profits
- Active buying and selling trigger more transaction costs
- High risk
- Pay capital gains tax on profits
- Stock market volatility can hurt a portfolio quickly
The bottom line
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