Active and passive investing are two different approaches to mutual fund investing.
Active investing involves hiring a professional fund manager to actively make investment decisions, with the goal of outperforming the market. Active managers use their research and analysis to buy and sell securities within the fund, in an attempt to generate higher returns than the benchmark index.
Passive investing, on the other hand, seeks to mirror the performance of a market index, such as the S&P 500, by buying all the stocks in the index in the same proportion as the index. The goal is to track the index, not outperform it. The portfolio management is usually done through a process known as index replication.
There are pros and cons to both active and passive investing. Active investing can result in higher returns, but also carries higher fees and the risk of underperformance due to poor investment decisions. Passive investing is usually lower cost and has a higher chance of matching the performance of the market, but it may not beat the market.
The choice between active and passive investing ultimately comes down to the individual investor's goals, risk tolerance, and investment philosophy. It's important to thoroughly understand both approaches and consider factors such as fees, past performance, and investment goals when making a decision.
