Active investing refers to closely managing a portfolio to take advantage of market fluctuations. Active investors keep a persistent eye on their portfolio, selling when the price is high and buying when the price is low. Active investors can make a quick buck from split-second decisions. The goal is to beat the market by playing the market.
Passive investing takes a more relaxed approach. Passive investors typically hold on to their investments for a longer period (called ‘buy and hold’), looking to make a steady return that matches market movements. They may purchase an index fund and allow their wealth to grow along with the market. They’re less reactive to market changes, instead, relying on the growth of the economy to buoy their investments.
As for which approach delivers better returns, the verdict is inconclusive. Some sources claim actively managed funds perform better overall, while some claim that passive investing consistently outperforms active investing in the long run.