When it comes to investing, everyone has an opinion on what’s the best, to the next hottest stock they heard their neighbor talking about. Investing is very individualized and that much is true, but even with something so individualized, there are general guidelines that have been proven to be true. Of course we’re not here to read my opinions or force them into your mind, but rather we are here to go over the basic facts on each investing method and what works and what does not work. For every method there will always be push back, but for now, here is what is true.
Passive investing is certainly the winner among the general investing public and is what many should be doing. This investing strategy has proven to be the one that brings the most value to investors. The reason it works so well is because no matter how bad the market pulls back, the rebound has always been greater and when people pull out at the lows, that’s when you tend to lose money.
The negatives to passive investing are you may miss the short-term moves in markets you may not be in. Also, passive strategy takes times and some people who are investing may not have time. Overall, passive investing has proven to be the most profitable and should be the one most heavily considered.
Secondly, there is active investing, which would mean you are moving positions rather quickly. A time frame for active investing would be a couple weeks to a month or two. This strategy can work, but you are not as likely to outperform the market because you have to stay on top of everything and know when you buy and sell at the right times. Active investing allows you to catch the short-term moves that can bring the larger return, but with the larger return comes greater risk. This strategy is not for all, but it certainly can work for some folks.
Lastly, there is a combination of both. This type of investing certainly depends on the person and where they are at in their investing life. This would certainly work for a person who can sustain some risk because while you’re able to try and capture the short term moves, you’ll still have that nest egg sitting and riding the passive investing strategy. This could back fire if you get caught chasing the next move, because it really does take work and some luck to find the next big move in a given market. Again, out of all three, passive investing is certainly the most reliable and proven.
Each person has their own investing strategy and it is difficult to talk them off of what they know and claim to know. If you want proof, there are publications that go over this starting from this time era and back. Take some time, read over all the material you can, and formulate a game plan that is going to fit you and benefit you best.