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Dictionary / Investing

Passive vs Active Investing

Passive investing means buying the whole market through index funds and holding on. Active investing means picking stocks or timing the market to try to beat it.

Passive investing

You own a slice of everything, pay very low fees, and do little trading. You will never beat the market, but you will roughly match it. It is simple and takes little time.

Active investing

You or a fund manager pick specific stocks, hoping to do better than the market. It takes research and usually costs more in fees and taxes.

Which wins over time?

Over long periods, most active fund managers have failed to beat simple index funds after fees. Some do win, but it is very hard to know in advance which ones. That is why passive investing has grown so much.

You can mix both

Many people keep most of their money in index funds and use a small part to pick a few companies they understand well. Learning what each company does, like on Stooocks, helps with the active part.

See it in real companies

Open a company to see what it sells and how it makes money.

Related terms

Index fundA fund that copies a market index. ETFOne fund that holds many stocks at once. Expense ratioThe yearly fee a fund charges. Buy and holdBuying good investments and keeping them for years. Mutual fundA pool of money that a manager invests for many people. DiversificationNot putting all your money in one place.

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