Active vs. Passive Investing – Which is Right for You?

Anyone can make money on the stock market – there are affordable ways to invest even if you have a tight budget, plus tons of automatic tools make investing or trading stocks easier than ever, including mobile apps like Robinhood.

But should you choose to jump in and start benefiting from the current bull market, you’ll have to decide whether you want to be an active or passive investor. Both strategies can be effective – no worries if you don’t know which to choose! We can break it down for you in no time.

Active Investing

Active investing means you take an active role in the management of your portfolio (the collection of stocks or other financial instruments called “positions” that you own or have a stake in). For example, you might look at your portfolio weekly or even daily and buy or sell stocks, choose to withdraw or invest money in mutual funds or index funds, and more.

Naturally, this type of investing takes a lot of time and effort. It’s a good idea to read up on stock market investing and trading if you don’t have a formal education in this area. You’ll also need to decide whether you want to be a short-term investor or if you’d rather buy and sell stocks looking for long-term growth potential.

When to Do it and What to Use

Active investing is an ideal choice for those who find the stock market interesting and who will enjoy moving money around and making decisions themselves. It’s a good pick if you’re comfortable with looking at financial charts and analyzing stocks or funds, then living with the outcome of your decisions.

Fortunately, active investing can be made easy if you download trading apps like Robinhood or Acorns, both of which allow you to buy and sell stocks or enter and exit funds from your phone. These apps also include analytical tools, though you can look to stock analysis websites or subscriptions like The Motley Fool for more in-depth advice and strategic information.

Passive Investing

Passive investing is exactly what it sounds like – you just dump your money into a well-reviewed index fund (essentially a collection of stocks that don’t go up quickly do go up steadily over time), relying on the expertise of stock market experts to see long-term growth.

This type of investing is best if you are more interested in funneling a portion of your monthly paycheck into the stock market for your retirement and leaving it at that. Most people practice passive investing already when they fund their 401(k)s or IRAs.

When to Do it and What to Use

It’s a good choice if you don’t want to spend a lot of time thinking about stock market investing and just want to have a good nest egg when you retire. It’s also a good pick for people who find the stock market confusing or who don’t have the stomach to look at charts frequently or read several investing books.

Bottom line – Active or Passive Investing? Choose Wisely!

Ultimately, active or passive investing can be effective choices for funding your retirement or building up some side income. The choice is up to you – fortunately, we have a variety of other stock and investing guides to help you decide. Dive in for more information!