Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio

Chapter 9. Active Versus Passive Management

The debate over whether to actively or passively manage occurs with frequency in the investment profession.^[1] Although the two terms mean different things to different people, active management is generally considered a strategy incorporating active stock picking and market timing. In contrast, passive management usually refers to buy-and-hold strategies applied to individual stocks and/or asset classes. Passive management proponents argue active management does not perform any better than the market over the long run. They also argue, because index-like portfolios have lower expense ratios, passive portfolios deliver higher net-of-fee returns. Active managers counter with the argument it is possible ...