Morningstar's Guide to Active vs Passive Investing

Fund investing can be broken down into two broad categories – active and passive.This week we will be examining the benefits of these two investment approaches

Emma Wall 27 October, 2014 | 8:42AM
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Investing can be a confusing business. Never mind the jargon – the sheer choice available to private investors can be overwhelming. More than 3,000 open end funds, 300 investment trusts, thousands of exchange traded funds and scores of stock markets containing hundreds of stocks.

Fund investing can be broken down into two broad categories – active and passive.  A fund is an investment vehicle that allows a large number of people to pool their money together in order to invest in a range of different securities such as stocks and bonds.

Active fund management involves an individual or team taking an active position in a company or fixed income instrument. While these funds often list an index as a benchmark for comparison their holdings can differ widely from that of the comparative stock market. These active decisions, when executed successfully can mean considerable outperformance of this benchmark. It can also lead to significant underperformance as well however – and the loss of investors’ capital.  

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar