Active investing requires funds, time for research, and knowledge of a portion of the market. Passive investing requires funds and a willingness to let your index funds build up over time. Both can be lucrative in their own ways. Your Risk Tolerance If the idea of losing money raises your risk of financial heartburn, you may not be a good candidate for an active investing portfolio. In fact, you may want to set up your investment account, buy some index funds, and lose your password so you can’t check your balance. The market drops on occasion, so even index funds can drop in value. However, if you can avoid panic and leave the money alone, passive investing can earn money over time. Your Interest Following the whole market isn’t an effective method of investing. According to the experts at Money Morning, focusing on a market that holds your interest can improve your odds as an active investor. The goal of active investing is to beat the market. Your interest in a particular industry could help you to choose between active vs passive investing. Your Need Are you investing with post-tax money or is this investment part of your 401(k) or a Traditional IRA? If you’re investing for your retirement and are getting an employer match, a great way to learn about your tolerance and interest for active investing is to put your contributions into an index fund and put your employer’s contributi...
