Investing

Active VS. Passive Investment: Which Is Right For You?

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Once you dive into the world of investment, you’ll find out that there’s more to it than simply setting up your funds and watching them grow. You also need to think about your investment strategy: what type of investor do you want to be?

As part of this process, you’ll need to decide whether you want to adopt an ‘active’ or ‘passive’ investing style. The distinction is simple: active investing means taking a hands-on approach, regularly mixing up your investments to take advantage of current market trends. Most active investors hire a portfolio manager to help make decisions about when to buy and sell, although those with enough expertise (and time on their hands!) may choose to make the trades themselves.

On the flip side, passive investment means buying in and then leaving your investment alone. Rather than selling often, you will hold onto your assets over many years and hopefully reap the rewards of a gradual rise in value. Many passive investors choose to buy an index fund, while others may invest in an asset such as cryptocurrency and then hold it as the value fluctuates.

Passive investment is usually less expensive. You won’t be subject to as many transaction fees, and you’re less likely to need the expense of an expert consultant. It can also be a little more secure – buying and selling often means there’s always the risk that your portfolio manager will make the wrong call and end up trading at a bad time.

However, proponents of active investment will tell you that it offers a lot more flexibility. If you spot an investment or asset that seems to be on the up, you can make the decision to bring it into your portfolio. And, with greater risk comes the possibility of greater reward: some investors find that this is the best way to maximise their returns.

When choosing which option is right for you, you’ll need to consider your investment priorities. If investment is something that excites you, and you want to spend time managing your fund and trying to stoke the embers, then you might find yourself drawn to active investment. Meanwhile, passive investment is a solid option for those who want to set their money aside and give it time – and space – to grow.

And for anybody who wants to get even more involved with their funds, there is also the option of day trading. This involves making smaller, regular trades based on the fluctuating prices of different stocks and shares. You can also trade with cryptocurrencies – and there is even software available to help you.

Apps like bitcoin digital help you to understand the crypto market better by offering expert analysis. By using an algorithm to analyse the changing prices, they’re able to give an indication of when you should trade. This can be a lot of fun, as you get to spend time watching the performance of different cryptos, and make trades that take advantage of the large price swings that currencies such as bitcoin often experience.

About author

Poppy loves personal finance almost as much as she loves her two cats, Tif and Taz.
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