Active and passive investments are like lanes on a highway. Should you cruise in the middle lane and go with the flow of traffic? Or should you take the left lane and bypass the slowdowns?
A passive investment strategy tries to keep pace with the major stock indexes, such as the S&P 500 or Dow Jones Industrial Average, while an active strategy aims to outpace them.
For the average investor, the safer and more sure lane is a passive strategy. It’s how most index funds and robo-advisors operate.
Active investment is much more hands-on, and the constant trading is too involved for the average investor. But with the rise of a company like Titan, active investing is now a viable option for the average investor.
This is what you need to know about active and passive strategies if you want to pick the right lane to get where you want to go.
A Closer Look at Active Investing
Sure, we’d all like to think we’re smart enough to pick the right investments at the right time and that we’re savvy enough to trade them just in time. The reality of it is: Active investing is practically a full-time job.
This strategy requires an ear to the ground, eyes on the horizon and frequent trading.
Active fund managers and their investment team follow the market closely, looking for stocks that are trending up and selling those that are falling short of expectations.
The general goal of active investing is to outperform the major indexes by capitalizing on short-term gains.
Active investors generally have a high tolerance for short periods of downturn, with the expectation that their assets will ultimately gain more long-term.
There’s risk underlying every investment, but even more so in taking an active approach to investing. Investors in this lane drive faster, with frequent trading, intent on moving faster than the flow of traffic.
You’d have to be right much more often than not — or work with an investment firm that has a proven track record of strong annualized returns.
Note that some of the gains of an active fund can be negated by maintenance and management fees, paid to the manager and analysts who monitor the market for you every day.
Advantages of Active Investing
- Trading is based on present market conditions more so than historical data or emotional attachment to certain assets
- Active managers can exit any asset in a fund, while passive funds often don’t allow variance
- Can hedge investments with short sales, put order and other strategies
Disadvantages of Active Investing
- With a high volume of trades, active investing can end up costing you a chunk of your gains in commissions. And if you’re investing with a hedge fund, this can come with management fees.
- Active funds can require minimum investment amounts that can be expensive or out of reach to the average investor.
How Passive Strategies Work
This strategy goes with the flow.
Passive investments follow the buy-and-hold strategy, usually targeting exchange-traded funds or mutual funds for growth that tracks one of the major market indexes.
Though active investment funds may pivot to this strategy for some assets too at times, passive investments aim to hold onto securities long-term despite short term dips in value ー there’s much less buying and selling.
If the index a passive fund is tracking begins to slow, so too does the growth of the fund’s portfolio. Again, the goal here isn’t to outperform the tracked index, but to keep up with it.
It’s a safer approach to investing. But when you invest in an active fund with a proven track record of more gains than losses, you can grow your portfolio’s value faster than investing in a passive fund.
Advantages of Passive Investing:
- Lower fees for investing (active funds often charge management and performance fees)
- With less buying and trading, passive investors tend to incur fewer investment-related taxes.
- No need to try to anticipate the market.
Disadvantages of Passive Investing:
- Unlikely to outperform the market
- Passive funds may not allow the shedding of underperforming assets, which can make them more susceptible to bear markets.
Active Investing for the Average Investor
For the average investor, it’s easier to pick that middle lane and to turn on cruise control. There’s just too much maneuvering and calculated risk tasking to beat the market in the fast lane.
However, you could let a professional drive you to your destination safely.
Titan invites the average investor to ride along with them in the fast lane. This company has had a lot of success in identifying and securing equities known as compounders, stocks that show clear signs of resiliency and strong risk-adjusted returns.
Plus, you get to know where your money is being invested and the reasoning behind it. That transparency comes with every move they make that impacts your portfolio.
The firm has four investment strategies, and they’ll recommend how much you should allocate to each:
- Titan Flagship: This fund targets anywhere from 15 to 25 large-cap corporations for compounding capital growth faster than the S&P 500 Index. These companies have a competitive edge, staying power and strong leadership.
- Titan Opportunities: This fund invests in 15 to 25 small and midsize companies with up to $10 billion market cap. The investment team has identified traits like resiliency and strong growth prospects in these rising stars.
- Titan Offshore: This strategy targets 15 to 25 potential capital compounders in emerging markets abroad and seeks to outperform the MSCI ACWI global equity index.
- Titan Crypto: This fund invests in a handful of cryptocurrencies and other digital assets. These crypto assets are chosen based on adoption, utility regulatory framework and more. This is also the first actively managed crypto portfolio for all U.S. investors.
With the Titan app, you can follow your money and the work that goes into growing it. You’ll get insights in real-time, daily alerts from the investment team, and you can even send them questions.
This isn’t a hedge fund, however. Your capital goes into your own account and you can withdraw your money at any time. And with a 1% fee, there are no ridiculous performance or maintenance charges to negate your growth.
FAQs: Active vs. Passive Investing
Still not sure whether you should consider active funds or keeping all your capital in passive funds? We’ve provided answers to three of the top questions web users asked on the subject of active vs. passive investing.
Is active investing worth it?
Without an experienced fund manager and analysts to mitigate the risk, active investing can be intimidating and more risky for the average investor. But actively managed funds have unique advantages that make them worth the slight bit more risk.
One major advantage of active investing is the ability to minimize losses during market slowdowns. While passive funds generally don’t allow variance in assets, active portfolio managers can divest in underperforming stocks.
Which is better, active or passive investing?
Historically, the pendulum of public favor has swung back and forth between active and passive investing. Determining which is better is ultimately a personal choice. However, until options like Titan, managed active investing wasn’t readily available to all investors.
There are always risks involved with investing money. Active investing takes on more risks for better gains, while passive investing takes a more conservative approach for more modest growth.
It’s pragmatic to leverage a blend of both strategies, balancing your investments to fit your risk tolerance and financial goals.
Can I invest my retirement savings in an actively managed fund?
Yes, certain investment firms, such as Titan, let you roll over a 401(k) or Roth IRA to one or more of their funds. Your money will be held in a tax-advantaged account with the ability to adjust your risk tolerance based on your preferences or needs.
Start Investing Today for as Little as $100
It takes just two minutes to create an account with Titan — either a taxable account for regular income or a tax-advantaged account for your retirement funds.
Choose which of their four investment strategies to add to your portfolio and let the investment team bring you up to speed during the onboarding process.
While other active investment funds may keep you in the dark, Titan explains all of the moves it makes that impact your money. Follow along live as your money compounds and withdraw it whenever you want.