Active vs. Passive Investing
Both active and passive approaches can be used in a portfolio. The better fit depends on objective, market exposure, cost, tax considerations, implementation quality and investor preferences.
Active investing
Uses security selection or tactical allocation in an effort to improve outcomes relative to a benchmark or objective. Higher activity can increase costs, taxes or manager risk.
Passive investing
Tracks an index or rules-based benchmark and typically accepts benchmark-level market exposure rather than attempting to continually outperform it.
Fees matter
Even small differences in recurring costs can compound over long periods.
Tracking and benchmark choice
A passive strategy can still behave unexpectedly if the chosen benchmark is concentrated or does not match the investor's objective.
Blended approaches
Some investors combine passive core exposures with active satellites, subject to suitability and regulatory considerations.