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.
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.
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 contribution into an active fund that will allow you to do some experimenting.
If you set up an investment account to work on your active investment strategies, look for a brokerage account that offers:
- unlimited trading
- low fees per trade
- an unbiased news feed
Information is key when working out your investment plan. Timing the market is challenging overall, but proper timing in one industry can be a much easier way to build up the value of your stock profile.
Planning for the Future
To really build an active investment niche, you will need to understand the industry that you want to invest in. You will also need knowledge of the future plans of the big players in the industry. Finally, you will need to keep an eye on world conditions so you can consider exactly what those events will do to the industry you’re following.
The art of futures trading may be an interesting investment strategy to study, but knowing the future of your industry will take more intense study. Again, focus on beating the market indexes. If you don’t think you can do better than the S&P 500, put your money in an index fund and let it percolate.
Active trading can be interesting, lucrative, and a terrific reason to learn more about a particular industry. The information necessary to be an effective trader in a specific field can become addictive, but that knowledge will serve you through the coming global changes.