Finance: What are Active Investing and Active Management?

What are Active Investing and Active Management? Active investing means exactly what it sounds like. The investor is actively buying and selling, as well as keeping track of their performance and seeking investment strategies. Active management is the same thing, but in this case it’s not the investor doing all of the work, it is a fund manager or financial advisor.

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Transcript

00:29

passive just passive.. active is what hedge funds and mutual funds and any

00:35

kind of funds that have a strategy do they actively try to invest money such

00:40

that the performance of their portfolio does better than whatever index or

00:45

benchmark it's measured against and notice were not talking about after-tax [Man discussing active investments]

00:50

performance here because remember every time you trade in a taxable account

00:54

while the attacks men cometh but we won't go there right now..... Your benchmark

01:01

compare is versus the S&P 500 and you manage a broadly based mutual fund the

01:07

passive investing cousin in this investment is an index fund think ticker

01:13

SPY, that's the biggest S&P 500 index fund well index funds are not actively

01:18

managed they are passively managed they just sit there and get tweaked a little [Pile of money grows larger overnight]

01:23

bit each year or really each quarter to kind of mirror the S&P 500 or whatever

01:28

their index is supposed to mirror but they just kind of sit there there's no

01:31

human trying to beat the market they are the market index funds are the

01:35

market and yeah 99% of actively managed funds don't beat the market over any

01:42

extended period of year like five or ten years very few ever beat the market and

01:47

essentially none of them beat the market after taxes so then why would someone

01:51

invest in an actively managed mutual fund when they're paying taxes and

01:56

they're thinking about an index fund as a comparable well basically they're one [Mutual funds on a table and a lollipop appears]

02:00

of these so yeah don't be one of these guys