What is Passive Investing?
Passive investing is an investment strategy that aims to replicate the performance of a specific market index or asset class rather than trying to outperform it. Instead of actively buying and selling securities in an attempt to beat the market, passive investors seek to match the returns of a designated benchmark, such as the S&P 500 for stocks or the Barclays Aggregate Bond Index for bonds. Picture an index, as a collection of stocks like the Sensex, Nifty 50 or S&P 500 of selecting stocks manually a passive investor would opt for a Index fund or ETF that mirrors the S&P 500 owning small portions of all those companies.
Key characteristics of passive investing include:
- Passive investors typically invest in index funds or exchange-traded funds (ETFs) that track a particular market index or asset class.
- Passive investors adopt a buy-and-hold strategy, where they maintain their investment positions over the long term without frequent buying or selling.
Difference between Active Investing and Passive Investing
Active Investing and Passive Investing are two different types of investing methods, commonly adopted by various investors. Active investing is an investment strategy where investors actively buy and sell securities, such as stocks, bonds, or other financial instruments, whereas, Passive investing is an investment strategy that aims to replicate the performance of a specific market index or asset class rather than trying to outperform it.