4: Active vs. Passive Investors

It’s important to find out what kind of investor you are in order to choose the right investment strategy for you.

For example, do you want to take more of a back seat with your investments? Or do you want to be more hands on?

There are many investing strategies, but it’s best to start by thinking about whether you like to be actively involved in your investments, or if you are comfortable with a more passive strategy.

Active and passive investors have different motivations and beliefs which affect their personal investing goals and outcomes.

Active investors like to be involved. They are willing to buy and sell their investments more frequently than passive investors. They are ready to change their portfolio if they feel they can make gains or stem losses.

Active investors may work with a registered investment professional, or be a DIY investor who buys and sells their own investments.

Passive investors tend to limit the amount of buying and selling within their portfolios. They generally employ a buy-and-hold strategy. This means resisting the temptation to react to or anticipate the financial market’s every next move.

Passive investors may use the services of an investment professional, or be a DIY investor. They may also use a robo-advisory service.

To determine if you want to be an active or passive investor, think about your financial goals, your time horizon, your risk tolerance, and your investment knowledge.