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Passive Investing

In short

Buy-and-hold index funds — market returns with minimal fees and effort

Passive investing means buying index funds and holding them forever. No stock picking, no market timing. You get exactly what the market returns, minus tiny fees. Research consistently shows it beats most active strategies over the long run.

Passive investing tracks market indexes rather than trying to beat them. The efficient market hypothesis supports this — prices already reflect all available information. Passive investing's advantages: low fees, tax efficiency, diversification, and superior long-term performance vs most active managers.

Related concepts

  • Active Investing — Active investing means trying to pick stocks or time the market to outperform the index. It requires research, analysis, and discipline. Most active managers fail to beat their benchmark after fees over 15 years.
  • Index Fund — An index fund automatically owns every stock in an index (like the S&P 500). No stock picking. Very low fees. You get the market's return. Studies show 80-90% of active fund managers underperform index funds over 15 years.
  • ETF (Exchange-Traded Fund) — An ETF is like a basket of stocks that trades on the stock exchange just like a share. Buy one ETF and you might own 500 companies. They combine the diversification of mutual funds with the trading flexibility of stocks.
  • Benchmark — A benchmark is your measuring stick. If you earned 12% but the S&P 500 (your benchmark) earned 15%, you actually underperformed despite making money. Most active managers struggle to consistently beat their benchmark.