Question of the week: What is passive management?

Submitted by nsscadmin on Wed, 02/14/2018 - 10:00

Last week we answered the question, “What is active management” which ultimately led to another question – What is passive management?

Passive management is an investing strategy that tracks a benchmark, such as a market-weighted index like the S&P 500. The most popular method of passive management is to simply mimic the performance of a specific index by buying an index fund. For this reason, passive investing is also commonly referred to as index investing.

The rationale behind a passive investment strategy is that investors will see an average return fairly equal to the market average. If this is the case investors should benefit more from reducing investment costs, which are generally lower in passive investing than active investing, than they would from trying to beat the market.

There are pros and cons to both active and passive investing. And, there are arguments from both sides on which strategy is better for investors. Whenever you’re deciding on investments and potential investment strategy always do your research to determine which it most suitable for your financial goals and current financial situation.

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