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Active versus Passive Investing

There are two roads an investor can follow when managing an investment portfolio: active management and passive management. Active management is when investors use stock picking and market timing techniques to try to outperform specific benchmarks. In contrast, passive management refers to a strategy where investors buy index funds that attempt to replicate the return of a specific benchmark.

The human desire to beat the market is a powerful force. Investors will spend a considerable amount of time and money searching for superior returns through active management. That search is promoted by a multi-billion dollar Wall Street marketing campaign that employs an army of talented salespeople. Despite all the time and money spent trying to identify ways to beat the markets, the net result falls far below expectations.

Spending time and money trying to beat the market with active management is counterproductive. At Portfolio Solutions®, we specialize in passive investing with low-cost, index-based funds and we believe it is in the best interest of our clients.