The Constant Debate in Investing Field – The Active over the Passive Investment Funds?

It has become a common knowledge in investing initiative that there is a constant dispute over which is the best to go for: to approach the active or passive investment funds? This debate can definitely not reach to a single outcome since everything will depend on the preferences and expectations that one might have when looking to invest in something.

Through a passive investment you are supposed to pay lower cost – expense ratio – when approaching the index investment funds. On the other hand with active investments, such as DEF Value Fund or ABC Growth Fund, one of the arguments would be that their target is to achieve better returns even if there is more risk involved. In case you still have this dilemma, into which one to make the investing, then you would better ask yourself the following:

* Should I make the investment myself or should I look for someone to do the investment for me?

The answer is that passive investments require your active management while with the active investment you should do an occasional monitoring. Investing in a series of indexes you must watch the overall asset mix evolution with a close eye. This means that you must wipe off the gain in excess from a single index and put it in an index (belonging to other asset classes) that shows less performance. The fund that is actively managed will keep under control the particular holdings, in this way not only that diminishes the risks but also will free up your time.

* Can I manage the same on my own and get the same results?

With index investing you can be certain that the goal will be achieved through passive investments. This will lead to the idea of getting more exposure to a certain industry, and thus getting stuck into a broader market or you might not reach that stage of aggression to succeed. Indexes are great when they are generally approached, whereas with the active investing this can lead to certain market niches.

* Do track records satisfy me?

When index investing, you are supposed to take the returns that are given. With the active investments you can win even if the index loses. It requires on your behalf some occasional reviewing as in this way you can make sure that the management is functioning properly resulting in a relevant fund’s approach that you need for your portfolio.

Over time you will be able to discern better what is the best investing, following also the market evolution and how the funds perform. As a novice investor however, you should know that selecting one method only might require from you plenty of work, while with the selection of familiar assets classes index this can be a better strategy.

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