Active v. Passive Investing: Which Is Better For You?

Investing is always a risk. You put your hard-earned money into an account hoping it will grow over time. However, as seen in 2008, the market can be quite unstable and unpredictable, so making wise investment choices is important.

The way you choose to invest your money is up to you — the two main types are passive and active investing. There are benefits and drawbacks to each one, so which investment type makes the most sense?

Passive Investing

This type of investment is a strategy that aims to maximize your returns over the long run by minimizing the amount of buying and selling that occurs. In other words, you won’t profit from one great bet; the ultimate goal is to build wealth slowly and steadily over time. When you buy a passively invested security, you do so with the intention of holding onto it for many years with the belief that the market will post positive returns with enough time.

Of course, the drawback to passive investing is that it involves trusting the market and believing that it will correct itself over time. Passive investors must resist the urge to sell when the market experiences a downturn.

Active Investing

Active investing is almost the exact opposite. Instead of trusting the market will fix itself over time, the investor engages in buying and selling stocks based on the current market performance and whether the chosen investments are going up or down.

When you actively invest, you purchase stocks, bonds or gold shares and monitor their activity closely for gains and losses. This requires a knowledge of the markets or a partnership with someone who has that experience.

Successful active investing involves a combination of skill and luck, and it’s hard to determine which one exerts more influence. It may be a combination of both, but either way, the volatility of active returns means that it takes years of data to determine if an investor is skilled or just lucky.

Whether you invest actively or passively, gold is known to be a stable investment and a reliable hedge because its security helps balance out more risky investments. Gold tends to inversely follow the stock market, providing versatility for your portfolio. By establishing a gold IRA, either actively or passively, you can better protect your retirement funds from volatile markets.

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