Comparing Passive and Active Styles of Investing
May 12, 2016
After deciding between a TFSA, a RRSP, or a non-registered account and the financial products to put inside them, we ought to know our investment strategy. The best way to define this strategy is to decide between active and passive investing.
Active investing is, as the name suggests, to be active in trading stocks, commodities, forex, and bonds on a daily, weekly, or monthly basis. Think short term buying and selling.
On the other hand, passive investing shifts the focus to investing in stocks, funds, bonds for the long run. This includes holding them for for upwards of 5 or more years, allowing them to grow, reinvesting dividends, and compounding over time.
Interested in keeping up to date about the market and predicting trends to take advantage of prices going up or down? Then, active investing might be best suited for you.
What if you’re the opposite? Where the market trends don’t seem to be in your interest but you want to invest in a company or a fund because you believe that in the long run they will profit and increase your wealth? Then passive investing is best suited for you.
In our opinion, passive investing is the best practice to start and to get a first hand experience with investing. There’s no need to stay focused on the market, there’s less risk involved holding funds for a long period of time, and time after time, even after economic downturns, passive investment still is shown to perform exceptionally well.
This is particularly true when we look at index funds and exchange traded funds (ETFs) that mimic indexes such as the S&P500, TSX, and NASDAQ. We will talk more about this in next week’s email.
Once you get comfortable with passive investing, you should start looking into active investing while maintaining your passive investments and get the best of both worlds.
Next week we’ll guide you to getting you started with our process to start a passive investment account, suggest funds to purchase (that we feel are a great place to start), and provide additional resources to other alternatives.Young Guys Finance is a website dedicated to teaching the essentials of personal finance for young Canadians. If you’re hungry for more, check out our videos at http://www.youngguysfinance.com
Justin Lee is the host of Young Guys Finance. With an accounting degree from SFU and in pursuit of his CPA designation, Justin also has a weird mix of interests that include sneakers, coffee, and Kanye West.
Irvin Ho is the business and content developer for Young Guys Finance. He graduated from SFU with a BBA in Finance. In his spare time, Irvin plays competitive dodgeball in the Vancouver Dodgeball League, and ultimate in the Vancouver Ultimate League.
Shun Lee handles the experience design and multimedia production of Young Guys Finance. He graduated from SFU with a BA in Interactive Arts and Technology. Shun is a meticulous guy, obsessed with designing spreadsheets for all aspects of his life.