The paper "Active and Passive Investing" is an outstanding example of a finance and accounting assignment. There are two main investment strategies which investors embrace that help them generate returns; they include passive and active investment strategies. In this case, the passive investment strategy entails mimicking particular index investment holdings whereas the active investment strategy it entails outperforming the market as per a specific benchmark. Active investing can be defined as an investment which is dependable on the skill of a particular fund manager or investor to perform beyond the limits put or stipulated by a particular benchmark (Flood, & Ramachandran, 2013).
The benchmarks, in this case, are indexes which are well known such as the share price index of Dow Jones in the United States market or the DAX share price index in Germany market. Moreover, passive investing is an investment strategy that is built on the general belief that it is close to impossible for one to out-think the marker let alone outperform it. Therefore, this investment strategy is basically concentrated on matching the market’ s performance or the chosen sector of the market as a whole (Trudeau, 2014).
In this investment strategy this is made possible through closely tracking or following a particular investment index, for instance, the FTSE 100 index associated with the biggest companies in the United Kingdom (Fraser-Sampson, n.d. ). This paper, therefore, aims to review the difference between active and passive investing. Evidence for active investing (against passive investing) Active investment is more ideal compared to passive investing because it focuses on active bond funds and active equity funds. This shows that this particular investment strategy is more concentrated on identifying and pursuing investment which promises the best returns (Bowen & Booth, 2011).
Besides, this shows that this particular research strategy is focused on investment with huge payout hence, ensuring the investors get more than what they invested (Lim, 2011). On the other hand, active investments are usually funds which are run by an investment research team who are given the mandate to make all the decision regarding investments, whether to buy or sell different assets by the investor. In this investment strategy the investor benefits from the investment expertise and experience, extensive knowledge and skill as well as extensive access to research in different sectors, markets and extensive investment based network (Investopedia, 2014). The active investment strategy is better than the passive investment strategy since it aims at delivering superior returns than those in the market as a whole.
On the other hand, this type of investment is quite conservative hence it is quite ideal compared to passive investing having that it guarantees the protection of capital and its loss of value in case of a fall in the markets is quite high (Shankar, 2011).
Another benefit of active investing as compared to passive investing is that the actively managed investments tend to offer a higher return than those provided by the market. Thus, with the availability of an expert in this investment strategy an investors’ money is well invested through making the right calls. Since the goals and objectives of most investors are for their investment to achieve higher returns hence a clear alignment of these goals with those of active investments strategy making it even more ideal (Speidell, 2016).
The active investment strategy is also more ideal since its more useful in specialized areas such as emerging markets, healthcare, technology and smaller companies which are best suited for this investment strategy due to their need for expert in finance and investing (Trudeau, 2014). This, therefore, guarantees further investment in more promising areas such as health care ad technology. The active investment strategy is considered to be timid and not willing to embrace risk, therefore, limiting it the possibility of higher payouts compared to passive investment strategy (Wild, 2013).
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