BLOG
TO BE THE BEST, YOU MUST LEARN WITH THE BEST
PASSIVE INVESTING VS ACTIVE INVESTING
There are generally two types of investors when it comes to the world of business. On one side, you have passive investors who aim to build their wealth gradually. These investors buy securities for the long haul and do not seek to profit from market timing and short-term price fluctuations.
On the other, you have the active investors who take a relatively higher degree of risk in an attempt to maximize returns. Instead of focusing on the safety of principal or income, they emphasise capital appreciation as their primary investment goal.
Investing money can be an excellent way to generate some passive income and make your money work for you, let’s take a closer look at active vs. passive investing, and the pros and cons of each.
What Is Active Investing?
Active investing, as its name suggests, means the investor takes a hands-on approach to their investments. The currency market is continually changing — the prices rise and fall depending on how a particular country is doing, and those changes affect the portfolios of active investors. The goal of active investing is to make as much money as possible by buying when prices are low and selling when they are high, so an active portfolio is always changing.
Active investing requires a deep understanding of the fluctuations that take place when the market is open. Currency market analysts study the patterns of these market changes and make predictions based on that information. This isn’t something the average person can approach on their own. This is why a lot of traders that participate in active investing usually have mentors, analysts, portfolio manager and trading communities that help them with market insight.
What Is Passive Investing?
Passive investing is the opposite of active — instead of buying low and selling high over and over again, passive investors buy stocks and hold onto them. They don’t need to anticipate the market’s every move because they’re not going to sell their holdings according to the whims of the market. Instead of relying on the big paydays that come with selling stocks, these investors generate passive income from dividends and interest over time.
Active Investing Pros And Cons
Let’s take a look at some of the pros and cons of active investing.
Pro — Flexibility: The market is continually changing, and sticking to a passive investment plan could cost you money in the long run. Active investing gives you the flexibility to buy and sell to maximum effect as the market shifts.
Con — Cost: Active investing is expensive, even if you have significant returns coming in every year. The cost of having a portfolio manager, mentors, and analyst can come at a significant cost to the investor.
Pro — Tax Breaks: Even losses can be beneficial for active investors. They can stack their stock market losses against their taxable income, which reduces year-end tax bills.
Passive investing pros and cons
What about the pros and cons of passive investment?
Pro — Lower Costs: Passive investment is one of the cheapest ways to take advantage of the stock market. There are very few fees, no overhead costs like you’d incur by hiring a portfolio manager, and you don’t need to make a substantial initial investment.
Con — Fewer Returns: Since you’re not buying and selling as the market changes, your returns won’t be as high as they would be with active investment. It’s an excellent option for anyone who wants to leave money in the market for the long haul, though, with steady passive returns trickling in every year.
Con — Fewer Options: Passive investing may limit you when it comes to what companies you can invest in. Most index funds focus on the top companies in a given area, preventing you from taking advantage of new startups that may just be entering the market.
Whether you choose to actively or passively invest your income is entirely up to you. Hopefully, these pros and cons will help make that decision a little bit easier.
Happy Trading
Want to join the MyFXMentor Team? See trades taken by our top trading analysts, join our live trading chatroom, and access our strategy library! Simply contact us on bookings@myfxmentor.com
// MY FAVORITE BROKERS
// SOCIAL MEDIA PROFILES
Instagram: https://www.instagram.com/myfxmentor/
Facebook: https://www.facebook.com/myfxmentor
Risk disclaimer: The information presented on our blog are for educational and entertainment purposes only. Nothing on this website serves as investment advice or recommendations. Trading is risky and you can lose more than your initial investment. MyFxMentor cannot be held responsible for any decisions visitors make. Please consult a financial advisor before making any investment decisions. Risk disclaimer.