Did you know that only 56% of Americans are invested in stocks? And even fewer invest enough to be on track towards a healthy retirement.
Most Americans know the importance of investing, but few actually follow through.
Are you looking to finally start investing a decent portion of your income? Then you need to choose either a passive or active investing strategy.
Both investing strategies can work to help you grow your wealth over time, earn compound interest, and move closer to retirement. But they have different costs, risks, and requirements.
Keep reading below to learn which strategy you should use to build your investment portfolio.
What Is Active Investing?
Active investing is a daily or weekly process that takes a lot of time. It requires constantly looking at the markets and making regular trades. It’s the hands-on approach to investing.
Many individuals are interested in managing investments themselves. But this requires you to pour over charts, news articles, and financial talk shows throughout the week.
Active investing as a retail investor is like a second job. Or it’s your main hobby since you’ll spend all of your non-working hours managing your portfolio in hopes of higher returns than passive investing can provide.
If you don’t want to spend all of that time managing your portfolio this way, but still want to obtain the highest possible returns, you can work with a portfolio manager who actively manages funds on your behalf, in exchange for a fee.
Click here for more info on working with a financial advisor to build the best portfolio for you.
What Is Passive Investing?
Passive investing is just the opposite. Passive investing doesn’t require daily, or even weekly attention. Very little time goes into this investing strategy.
It’s essentially a “set and forget” investing approach. And as long as you choose the right assets to invest in, it can prove to be effective.
With passive investing, you are making very few trades. You’re not constantly selling and buying other stocks, depending on the nature of the market that day.
It’s not about “trading.” Passive investing is all about putting money into stocks that will perform well in the long term and weathering any storm that comes your way.
With fewer trades happening, you’ll be paying far less in fees and commissions. And you won’t have to spend your free time reading, watching, and researching the markets every day.
The Difference Between Active and Passive Investing
People opt for active investment strategies in hopes of obtaining higher returns than the standard market rate. In exchange for this, they are paying more in fees as well as time.
Passive investing is the acceptance of the average return. In exchange for a slightly lower return, they pay less in fees and don’t need to spend any time managing their investments.
Choosing Your Strategy
So which investing strategy is right for you? Do you enjoy the excitement of active investing, where you’re making weekly or even daily trades? Or would you prefer a passive strategy, where you rarely need to think about the markets at all?
Both can work, as long as you stay consistent with your investments.
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