Investor

Finance a la shmoop.. what are active investing and active management? Active

doing something, active as in trying to beat the market by trading stocks active [People riding a bike on stock market appears on board]

as in humans making decisions often with the help of computers trying to beat

their index or the overall market ie the S&P 500 that's what we mean by the

market active; investing.. active; management okay

passive just passive.. active is what hedge funds and mutual funds and any

kind of funds that have a strategy do they actively try to invest money such

that the performance of their portfolio does better than whatever index or

benchmark it's measured against and notice were not talking about after-tax [Man discussing active investments]

performance here because remember every time you trade in a taxable account

while the attacks men cometh but we won't go there right now..... Your benchmark

compare is versus the S&P 500 and you manage a broadly based mutual fund the

passive investing cousin in this investment is an index fund think ticker

SPY, that's the biggest S&P 500 index fund well index funds are not actively

managed they are passively managed they just sit there and get tweaked a little [Pile of money grows larger overnight]

bit each year or really each quarter to kind of mirror the S&P 500 or whatever

their index is supposed to mirror but they just kind of sit there there's no

human trying to beat the market they are the market index funds are the

market and yeah 99% of actively managed funds don't beat the market over any

extended period of year like five or ten years very few ever beat the market and

essentially none of them beat the market after taxes so then why would someone

invest in an actively managed mutual fund when they're paying taxes and

they're thinking about an index fund as a comparable well basically they're one [Mutual funds on a table and a lollipop appears]

of these so yeah don't be one of these guys