You have numerous investment options to choose from. You have to assess your requirements and risk profile before deciding to invest in any particular investment option. Investments are broadly divided into active and passive. Active investment requires you to dynamically change assets in your portfolio, depending on the market and economic developments. You need to have enough time and knowledge of investments to indulge yourself in active investments. Equity investments are the best example of active investments. On the other hand, passive investments do not require you to be hands-on with your investments. You invest your money and stay invested for a certain duration of time. It is also referred to as the buy-and-hold strategy of investment. This strategy of investment is advisable for those who can’t spare time to manage their investments. The following table shows the major differences between active and passive investments:
Parameter | Active Investments | Passive Investments |
Suitability | Individuals with an in-depth understanding of finances | Everyone |
Cost of investment | Higher as you frequently trade securities (mostly equities) in your portfolio | Lower as you buy and hold securities for a longer period |
Risk involved | Higher as you frequently buy and sell securities | Lower as you hold securities for a longer time |
Return potential | Higher | Lower |
You have to choose to adopt either an active or passive strategy after you have assessed your requirements and risk tolerance level.
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