Passive Management
Passive management is an investment strategy that seeks to maximize returns by minimizing trading activity. It is also known as passive investing or index investing. The goal of passive management is to match the performance of a benchmark index, such as the S&P 500, by investing in the same securities in the same proportions as the index. This strategy is in contrast to active management, which seeks to outperform the benchmark index by making active decisions about which securities to buy and sell.
History of Passive Management
The concept of passive management was first introduced in the 1970s by John Bogle, the founder of the Vanguard Group. Bogle argued that most active managers were unable to consistently outperform the market, and that investors would be better served by investing in a low-cost index fund that tracked the performance of a benchmark index. Since then, passive management has become increasingly popular, with many investors opting for index funds and exchange-traded funds (ETFs) as a way to gain exposure to the stock market.
Comparison of Passive and Active Management
| Strategy | Cost | Risk | Performance |
|---|---|---|---|
| Passive | Low | Low | Average |
| Active | High | High | Above Average |
Summary
Passive management is an investment strategy that seeks to maximize returns by minimizing trading activity. It is designed to match the performance of a benchmark index, such as the S&P 500, by investing in the same securities in the same proportions. This strategy is in contrast to active management, which seeks to outperform the benchmark index by making active decisions about which securities to buy and sell. For more information on passive management, investors can visit websites such as Investopedia and The Balance.
See Also
- Active Management
- Index Fund
- Exchange-Traded Fund (ETF)
- Asset Allocation
- Diversification
- Rebalancing
- Risk Tolerance
- Portfolio Management
- Financial Advisor
- Investment Strategy
