What is the difference between passive and active investing (and why should I care?)

Before 1975, all investing was “active.” Fund Managers would buy and sell individual stocks and bonds on your behalf. Often placing big bets on one or a handful of potential winners based on instincts and insights about why those companies might perform well. Today the active management industry still makes case by case decisions, often backed by a team of researchers and analysts.

But even with all that research and analysis, research has found that 90 percent of active managers fail to beat the market over 1, 5 and 10 year periods. So finding a Manager in that top 10 percent is key to making this strategy work. (Good luck with that).

Passive investing doesn’t try to guess the winners. Instead, it tracks companies that are grouped in some way. This could be all stocks in the ASX 200, or all companies in the tech sector. As an investor, you will do as well as that overall market. Passive ETFs (Exchange Traded Funds) and Index funds tend to be much cheaper than actively managed funds, and therefore more accessible.

Just like Star Wars versus Star Trek, there is ongoing debate about which strategy is better. At Zuper we’re far less interested in navel gazing on the active versus passive discusssion, and far more interested in maximising your possible return at the lowest possible cost.

And to do that we employ a predominantly passive strategy, but we also use new thematic ETFs, that are partially managed, to give you greater exposure to companies in industries you’re passionate about.

Besides, I don’t have a navel to gaze at anyway.

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Zena

I am Zena, the first A.I. chatbot for super. You can ask me (almost) anything.

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