Active vs. Passive Investing
Active investing attempts to beat market benchmarks through security selection; passive investing tracks an index at lower cost.
What is Active vs. Passive?
Active investing involves fund managers or individual investors making specific security selections and market-timing decisions with the goal of outperforming a benchmark index, while passive investing seeks to replicate the returns of an index by holding all (or a representative sample of) its components. Active strategies typically charge higher fees and require ongoing research, whereas passive funds minimize costs and turnover. Decades of performance data show that the majority of actively managed funds underperform their benchmark index after fees over long time horizons, making passive strategies popular for cost-conscious investors.
Example
The S&P Indices Versus Active (SPIVA) Scorecard consistently shows that over 15-year periods, approximately 85–90% of U.S. large-cap active fund managers underperform the S&P 500 after fees, supporting the case for low-cost index investing for most retail investors.