August 28 - Passive vs Active Investing

The big question from last class was, “Long term, what gives higher odds of statistical success, passive or active investing?”  To answer this, first we need to look at the differences between the two.  Active investing involves either paying a fund manager to take your money and invest it in what they believe will be the most profitable companies or choosing your own stocks to purchase. The advantages of these are that fund managers can sometimes correctly pick out future successful companies, which will make you a profit, and same with buying your own stock.  The disadvantages for these are that fund managers cost money and most people aren’t usually bright enough to pick great stocks.  Passive investing is paying for a part of the entire stock market as a whole.  If the stock market does well as a whole, then your stock will increase.  Advantages to passive investing are you don’t need to pay for fund managers and in history the stock market has usually done well long-term.

            We did some research on which investing type seems better statistically.  The majority of the class and I agreed that passive investing was a better option.  Statistics show that more than 70% of the time, passive investing will make a bigger profit than active investing.  I asked my dad about the two.  He both actively and passively invests.  He has some money put into an Index fund in the S&P 500.  This money he is saving for my sister’s weddings, my brother and my rehearsal dinners, and a new car in the future.  He actively invests his retirement savings in a fund called Fidelity Contra Fund. 

            Here is an article on why we should passively invest. http://www.post-gazette.com/stories/business/news/retirement-active-or-passive-investment-636226/

One question I have is that my dad says right now savings account percentage in Singapore is 1%, no where close to the 9% we put into moneychimp.