- Investing Academy
- Investing Truths
- Question of the Week
- Investing Guides
Simple Principles for Successful Investing
Try It! Test Out Investing Strategies
First off, a quick overview of just what it means when you hear active and passive investing. In short, active investing is generally a strategy focused on trying to beat the performance of the market. Passive investing, meanwhile, seeks to track or mirror a market index rather than beat it.
Many investors want to know if it's better to purchase an actively managed mutual fund or exchange-traded fund (ETF), or take the passive route and buy an index fund. Will the extra fees you pay for the expertise of a portfolio manager lead to higher returns, or should you just try to match the market?
This question has no definitive answer, but thinking about a few key considerations may help you reach your own conclusions.
For the long-term equity investor, the debate between active and passive strategies rests on three main considerations:
- Market efficiency
- Portfolio construction
- Historical performance
Find out more about each in inThe Active versus Passive Debate.
There is no definitive answer on which approach is best. As a self-directed investor, it's up to you to choose the investment philosophy that fits your beliefs and your situation. Indeed, you may wish to mix actively and passively managed investments in your portfolio. Checking Fund Facts or the management company's website for clues about how an investment product is managed can help you determine if it's active or passive. Often, an ultra-low fee would be an indication of passive management, while higher fees are generally associated with active management.
Whether you're an active or passive investor, a variety of products can help you to achieve your investing goals. For tips on making investment choices, check out the Researching Investments Guide.
You have been successfully subscribed to receive more Inspired Investor articles from RBC Direct Investing.
Your Subscription Failed
Your subscription to Inspired Investor has failed. Please try again at a later time.
View Legal Disclaimer
RBC Direct Investing Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. is a wholly owned subsidiary of Royal Bank of Canada and is a Member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. Royal Bank of Canada and certain of its issuers are related to RBC Direct Investing Inc. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc. ® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. Used under licence.
© Royal Bank of Canada 2023.
There may be commissions, trailing commissions, investment fund management fees and expenses associated with investment fund and exchange-traded fund (ETF) investments. On or after June 1, 2022, any trailing commissions paid to RBC Direct Investing Inc. will be rebated to clients pursuant to applicable regulatory exemptions. Before investing, please review the applicable fees, expenses and charges relating to the fund as disclosed in the prospectus, fund facts or ETF facts for the fund. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. For money market funds there can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you.
Any information, opinions or views provided in this document, including hyperlinks to the RBC Direct Investing Inc. website or the websites of its affiliates or third parties, are for your general information only, and are not intended to provide legal, investment, financial, accounting, tax or other professional advice. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Direct Investing Inc. or its affiliates. You should consult with your advisor before taking any action based upon the information contained in this document.
Furthermore, the products, services and securities referred to in this publication are only available in Canada and other jurisdictions where they may be legally offered for sale. If you are not currently a resident of Canada, you should not access the information available on the RBC Direct Investing Inc. website.
> Next: Simple Principles for Successful Investing
Top 10 Traded Stocks and ETFs in December 2023
Here's what RBC Direct Investing clients traded and added to watchlists in December
Top 10 Traded Stocks and ETFs in November 2023
Here's what RBC Direct Investing clients traded and added to watchlists in November.
Are You Prepared for The Next Stage of the Market Cycle?
You can’t always “time the market” but you can try to best position yourself for the cyclical nature of markets. Here’s how.
- Investing Academy
Inspired Investor brings you personal stories, timely information and expert insights to empower your investment decisions. Visit About Us to find out more.
I'm an investment enthusiast with a deep understanding of active and passive investing strategies. My experience in the financial industry has given me firsthand knowledge of the dynamics between these two approaches. Let's delve into the concepts discussed in the article you provided:
Active Investing vs. Passive Investing: The article provides a concise overview of the distinction between active and passive investing. Active investing aims to outperform the market, while passive investing seeks to replicate a market index rather than beat it.
Choosing Between Actively Managed Funds and Index Funds: The article raises a crucial question for investors: whether to opt for actively managed mutual funds or exchange-traded funds (ETFs) or take the passive route with index funds. It acknowledges the lack of a definitive answer and suggests considering key factors such as market efficiency, portfolio construction, and historical performance.
Considerations for Long-Term Equity Investors: The debate between active and passive strategies for long-term equity investors is framed around three main considerations: market efficiency, portfolio construction, and historical performance. The article suggests that investors should carefully evaluate these factors to make informed decisions.
Mixing Active and Passive Investments: The article recognizes that there's no one-size-fits-all answer and empowers self-directed investors to choose an investment philosophy aligned with their beliefs and situation. It even suggests the possibility of a mix of actively and passively managed investments in a portfolio.
Identifying Management Approach: Investors are advised to check Fund Facts or the management company's website to understand how an investment product is managed—ultra-low fees may indicate passive management, while higher fees are often associated with active management.
Product Variety for Investing Goals: Regardless of whether one chooses an active or passive approach, the article notes that a variety of products are available to help investors achieve their goals. It encourages investors to explore different options and offers a guide for researching investments.
In conclusion, the article provides valuable insights into the active versus passive investing debate, acknowledging the complexity of the decision-making process. It empowers investors to make informed choices based on their beliefs and preferences, recognizing that there's no one-size-fits-all solution in the dynamic world of investments.