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Passive Investing

Passive investing is an investment strategy that aims to replicate the performance of a specific index or market by holding a diversified portfolio of assets over the long term, rather than actively selecting individual securities. This strategy is often implemented through index funds or exchange-traded funds (ETFs) that mirror the composition of market indices like the S&P 500. Passive investors seek to minimize costs and volatility while achieving steady, market-average returns over time.

Example

An investor buys shares in an S&P 500 index fund, holding them for years without frequent trading, aiming to achieve returns in line with the overall market.

Key points

• Focuses on replicating market performance by holding a diversified portfolio.

• Implemented through index funds or ETFs that mirror market indices.

• Aims to minimize trading costs and market volatility while achieving steady returns.

Quick Answers to Curious Questions

It offers low fees, diversification, and consistent returns over time, reducing the need for constant portfolio management.

Passive investing involves tracking indices without frequent trading, while active investing focuses on selecting individual stocks to outperform the market.

Index funds and ETFs are the most common vehicles, offering exposure to entire market indices with low management fees.