Investors Should Decide Which Approach Is Suitable For Them: The active or The passive way.

Whenever there’s a discussion about active or passive investing, it can rather quickly turn into an excited debate because investors and wealth managers serve strongly favor, one strategy over the other. I hope this article can help investors to make a better choice between the pair.

Active Investing:   Active investing refers to an investment strategy that involves ongoing buying and selling activity by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions. Active investing requires confidence that whoever’s investing the portfolio will know exactly the right time to buy or sell. 

                            Active investing requires a constant monitoring of the market, and research to select stocks. Stock investment. This also means that investors would need to spend a substantial amount of time to keep up with market developments. Active investors can also usually be grouped into three different camps, such as income investing, growth investing, and value investing. 

Here are some advantages and disadvantages of active investing ;

1. Flexibility – Active managers aren't required to follow a specific index. They can buy those "diamond in the rough" stocks they believe they've found.

2. Hedging – Active managers can also hedge their risks using various techniques such as short sales or put options, and they're able to exit specific stocks or sectors when the risks become too big. 

3. Tax management – Even though this strategy could trigger a capital gains tax, advisors can tailor tax management strategies to individual investors, such as by selling investments that are losing money to offset the taxes on the big winners. 

Disadvantages :

1. Very expensive – The average expense ratio at 1.4% for an actively managed equity fund. Very expensive because all that active buying and selling triggers transaction costs, not to mention that you're paying the salaries of the analyst team researching equity picks. 

2. Active risk – Active managers are free to buy any investment they think would bring high returns, which is great when the analysts are right but shocking when they're wrong.

Passive Investing:  Passive investing is an investment strategy that aims to maximize returns over the long run by keeping the amount of buying and selling to a minimum. This a very cost-effective way to invest. The strategy requires a buy-and-hold mentality.   By investing in a passive manner, there’s no requirement to think about the varieties of stocks that go into our portfolios – we can buy the whole market. Share Investment

Investors may want to choose a passive approach because -they may have no time to analyze stocks due to work or family responsibilities, Or they have no interest in learning the necessary steps to invest with an active approach. 

Advantages: 

1. Ultra-low fees – There's nobody picking stocks, so failure is much less expensive.  Passive funds simply follow the index they use as their benchmark.

2. Transparency – It's always clear which assets are in an index fund.

3. Tax efficiency – Their buy-and-hold strategy doesn't typically result in a large capital gains tax for the year.

Disadvantages: 

1. Too limited – Passive funds are limited to a specific index. Thus, investors are locked into those holdings, no matter what happens in the market.

2. Small returns – By definition, passive funds will pretty much never beat the market, even during times of confusion, as their core holdings are locked in to track the market. Sometimes, a passive fund may beat the market by a little, but it will never post the big returns active managers crave unless the market itself booms.