Passive Management (also known as passive investing) and Active Management (active investing) are two different strategies used in the management of investment funds.
Passive Management is a strategy where a fund manager attempts to replicate the performance of a specific index like the S&P 500. Passive management does not aim to beat the market; rather, it focuses on tracking and mirroring the performance of a specific index. This strategy is employed by exchange-traded funds (ETFs) and index funds. The costs associated with passive management are usually less because it involves less buying and selling of securities.
Active Management, on the other hand, involves a fund manager or management team making specific investments with the goal of outperforming an investment benchmark index. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold, or sell. The costs associated with active management are usually more since it involves more frequent buying and selling of securities, and also because it requires more professional expertise.
The choice between passive and active management is primarily based on individual investor objectives, risk tolerance, and investment philosophy.
