Active vs. Passive Investment Management


Investing is a personal thing that can be really rewarding if you do it right. But what does “doing it right” mean? Is there really a “right” way? And how do you even get started if you’re considering investing in a new asset class or method of investing?

In this article, we’ll tackle the basics of Active and Passive Investment Management so that you can make an informed decision about what kind of investor you are—and maybe even change your mind about whether investing is right for you.

Get To Know Mutual Funds

Mutual funds—which are simply collections of different investments like stocks or bonds—are often considered the simplest and best way for most people to invest. But, as we’ve seen, fund managers fail to beat the market 75 percent of the time, and it can be hard to tell which funds will actually perform well over the long term. And no matter how good a mutual fund is, the returns are hammered by the large fees they charge. (Sure, there are some low-cost mutual funds , but because of the way they compensate their own portfolio managers and other employees, it’s virtually impossible for them to compete with the low costs of passively managed index funds, which I’ll talk more about in a minute.)

When it comes to investing, fees are a huge drag on your returns. This is a little counterintuitive, since we’re used to paying for service, like our gym membership or admission to Disneyland. If we’re getting something out of it, we should pay a fair price, right? The key is “fair,” and many of the financial “experts” we turn to for guidance make an effort to squeeze every last cent out of us.

I signed up for this retirement fund that charged a lot for management and now I have to put in money every month for five years to get it out. At the time, I was convinced by the financial advisor’s demeanor and fancywords. I am debating whether I should get the money out with…



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