Finance

Active vs Passive Ways to Manage Your Money

Active vs Passive Ways to Manage Your Money
Active vs Passive Ways to Manage Your Money

Money doesn’t grow by itself these days. With interest rates on savings accounts lower than they’ve been in years, placing your earnings in a bank won’t make you rich. However, there are ways to give yourself more opportunities in the future by changing the way you interact with your cash right now. Investing is one of the best ways to unlock extra wealth for yourself and your family in the future. Spend on the right assets now, and in the years to come, you could find that you have a goldmine waiting for you. The only trouble is that there are a lot of different ways to get started in this environment, from short selling stocks, to day trading. It’s difficult to know which avenue you should go down when you’re still a beginner. The good news? It only starts with making one decision. All you need to do is decide how active or passive you want to be with your strategy.

Going the Active Route

As the name might suggest, the active investing route means taking a hands-on approach to the way that you grow your future wealth. You might hire someone to take the role of portfolio manager for you, or you could do this yourself. The goal here is to beat the average returns of the marketplace and take full advantage of some of the short-term fluctuations that can happen in the price of a security. There’s a lot more knowledge needed in this region than there is if you take the passive route – which we’ll discuss in a minute. You’ll have to analyze the market in depth every day and create a complex strategy that tells you exactly when to pivot into or out of a certain position. You might even need to learn how to use new software so you can make more educated decisions in a shorter period of time. Though the risks and work are much higher in this world, the potential rewards are much better too depending on what you want to achieve.

The Passive Path

On the other hand, if you would rather take things slow and steady, you could take the passive route. This involves reducing the amount you spend and simply getting involved with a few different assets for a longer period of time. You’ll maintain a buy and hold mentality, where you resist the temptation to react quickly or anticipate the next move of the stock market. While you’ll still be encouraged to diversify your portfolio in this case and think carefully about how you can earn more money in the long-run, the aim will be to focus on the big picture, rather than right now. This means that you’ll generally have a lot less stress to deal with, and a lot less information to keep track of. There’s no one size fits all strategy that works well for everyone. The path that you choose will depend on how you feel when dealing with assets such as these. Just remember that the more you educate yourself about each of the paths that you can explore, the better off you will be.

About the author

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Mike K. Watson

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