Investing Styles #1 – Active V Passive

Tuesday 20 April 2021

Here are 3 key concepts, 2 key resources, and 1 key action, to help you understand investing styles.

There are plenty of different ways to make money investing. The important thing is that you find one that works for you and stick to it. 

An investing style is a way in which you determine what investments to buy. It’s a method or philosophy, based on several factors, of which wxe will discuss over the next 3 weeks in our ‘Investing Styles’ series.

  1. Do I need an investing style before I start? The short answer is no. Finding who you are as an investor takes time, and will involve making mistakes. The important thing is to learn from them and to understand it will take time. Don’t let it stop you from starting.
  2. Am I locked in for life? Successful investors generally stick to one style, one plan or strategy. This is because chopping and changing can really hurt your returns. However, this doesn’t mean you can’t finesse and adapt your style as markets and the world changes. 
  3. Do I need to choose just one style? No, some investors segment their money into different styles. An example of this is the core & satellite approach that we like. This is taking both a passive & active style (discussed below) and building a portfolio around them.

Are you passive or are you active?

Passive investing is about buying index funds and ETFs to get the average market return. It’s a hands-off approach and a great way to get started.

  • How: Limited buying and selling; long-term
  • Goal: avg. market returns
  • Difficulty level: low
  • Time required: low
  • Investments: index funds, ETFs; automated investing

Active investing is about taking a hands-on approach to stock picking to try and beat the market. It requires more time and understanding of the markets.

  • How: Hands-on, actively buying and selling
  • Goal: to beat the market
  • Difficulty level: high
  • Time required: high
  • Investments: individual stocks, and other assets to build a portfolio

How do you know which is best for you?

Ask yourself:

  • What is my investing goal? 
  • Do I need to beat the market? Yes = Active No = Passive
  • Do I have the time and the skills to research individual companies? Yes = Active No = Passive
  • Am I likely to be an emotional investor? Yes = Passive No = Active

Next week we’ll play a game to give you some insight into the different types of investors.

Community Call Out

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