What is Active Investing?
Active investing is a strategy where investors actively manage their investments rather than passively following a predetermined index or benchmark. This approach involves frequent buying and selling of assets, aiming to outperform the market average.
Key Characteristics of Active Investing
- Research-Driven: Active investors conduct detailed research on market trends, financial reports, and economic indicators to inform their investment choices.
- Regular Trading: This strategy often involves high turnover rates, with investors frequently adjusting their portfolios to capitalize on short-term market movements.
- Goal-Oriented: The primary aim of active investing is to achieve higher returns than what is offered by a passive investment strategy.
Advantages of Active Investing
Active investing can potentially lead to higher returns, as skilled managers may identify and exploit market inefficiencies. It also allows for more flexibility in response to market changes and personal investment goals.
Risks Involved
However, active investing comes with greater risks, including higher transaction costs and the potential for significant losses if market timing proves ineffective. Additionally, it requires a time commitment and expertise that not all investors possess.