11th April 2023
Investing your money can be a great way to grow your wealth over time, but it can also be a confusing and overwhelming process, especially for those who are new to the world of investing. One of the first decisions you’ll need to make as a new investor is whether to invest actively or passively. In this article, we’ll take a closer look at the differences between active and passive investing in the UK and help you decide which approach may be right for you.
Active investing is the process of selecting and managing individual investments with the goal of outperforming the market. Active investors typically believe that they can identify undervalued stocks or other investments that have the potential to generate higher returns than the overall market. This often involves researching different companies, following market trends, and making decisions based on that information. Active investors may also use financial advisors or other professional help to make investment decisions.
Passive investing, on the other hand, is a more hands-off approach that involves investing in a diversified portfolio of assets that track a specific market index. The goal of passive investing is to match the returns of the overall market, rather than trying to beat it. Passive investors typically use index funds or exchange-traded funds (ETFs) to achieve this. These types of investment vehicles allow investors to easily invest in a wide range of assets with a single purchase, and they are typically much less expensive than actively managed funds.
Both active and passive investing have their own pros and cons. Active investing may offer the potential for higher returns, but it also comes with a higher level of risk. On the other hand, passive investing is generally considered to be less risky and more cost-effective, but it may not offer the same potential for high returns as active investing.
When deciding which approach to take, it’s important to consider your own investment goals, risk tolerance, and time horizon. If you’re a new investor and you’re not comfortable taking on a lot of risk, passive investing may be a good starting point. But if you’re willing to take on more risk in exchange for the potential for higher returns, active investing could be the way to go.
In summary, active and passive investing are two different approaches to investing in the UK, each with its own set of pros and cons. Active investing involves selecting and managing individual investments with the goal of outperforming the market, while passive investing involves investing in a diversified portfolio of assets that track a specific market index. Deciding which approach to take will depend on your investment goals, risk tolerance, and time horizon.
Propelle does not provide investment advice. If you are unsure about anything, please seek financial advice from an authorised advisor. Your capital is at risk.