Beginner’s Guide to Passive Investing

Man looking at active vs passive sign in fork in the road.

When you’re starting your investing journey, the sheer number of choices can be overwhelming. Many people often ask, “What’s the best stock to invest in?” or “Which mutual fund should I choose?” The truth is, the best way to manage your investments depends on your individual goals and circumstances.

One approach that’s gaining popularity is passive investing. Before we delve into it, it’s important to understand that there’s a world of investment advice out there. The key is finding what works for you.

Active vs. Passive Investing

Active investing and passive investing are two contrasting approaches to managing your wealth.

Active Investing

Active investing involves continuous buying and selling of assets to outperform the market. It generally requires more time and research, as you need to keep up-to-date with market trends and economic indicators. Some potential benefits of active investing include:

  • Potential for higher returns: If you (or your fund manager) can successfully predict market trends, there are opportunities to earn higher returns than the market average.
  • Flexibility: Active investing allows you to react to market changes and adjust your portfolio as needed.

However, active investing also has potential drawbacks such as higher costs, greater risks, and the need for more knowledge and time. You may also want to check into Echo Trade,a platform that presents a variety of portfolios that are created by wealth managers, and have varying levels of risk and return. An example is the Socially Responsible Global Equity portfolio, developed by Auour Investments. 

Passive Investing

Passive investing, on the other hand, involves buying and holding a diverse mix of investments with the goal of mirroring the market, not beating it. This strategy assumes that markets are efficient and that trying to beat them is not worth the time, cost, or risk. 

The benefits of passive investing can include:
  • Lower costs: Since you’re not frequently buying and selling, you’ll typically pay less in transaction fees.
  • Diversification: Many passive investment strategies involve investing in broad market indices, which can provide instant diversification.
  • Lower stress: You don’t have to constantly monitor the market or make frequent investment decisions.

The Power of Passive Investing

Mutual Funds and Cap Funds

Mutual funds and cap funds (short for capitalization funds, which invest in companies based on their market capitalization) are common vehicles for passive investing. By investing in these types of funds, you’re effectively buying a small piece of a large number of companies, thereby spreading your risk.

Wealth Management Investing

When it comes to wealth management investing, passive strategies can offer a practical and cost-effective solution. The lower costs and diversification can lead to steady growth over time, which is often the goal for wealth management. Typically, wealth management investing has a high cost barrier to entry – but if you are looking for actual portfolios that wealth managers create, you can check out Echo Trade, where you can copy the exact strategies of a credible wealth manager. You’ll find many strategies that are actually beating the market in the Echo Trade Marketplace.

Investing Returns

While passive investing may not promise the high returns of successful active strategies, it offers consistent, market-matching returns. Over time, these consistent returns can compound into substantial wealth, which is why passive investing is often recommended for long-term investing goals, like retirement.

Investing Help: Making the Choice

When it comes to choosing between active and passive investing, consider seeking investing help. Financial advisors can provide personalized advice based on your goals, risk tolerance, and time horizon. They can help you understand the nuances of both strategies and guide you toward the one that’s best for you.


Remember, there’s no one-size-fits-all answer to the question, “What’s the best stock to invest in?” or “Which mutual fund should I choose?” The best investment strategy for you depends on your individual circumstances and financial goals. Whether you choose active or passive investing, the key is to stay informed and make intentional decisions about your wealth. By understanding the basic principles of investing, including the differences between active and passive investing, you can take charge of your financial future and work towards building lasting wealth.

Frequently Asked Questions

  • What is an example of passive investing?

An example of passive investing is investing in an index fund, such as the S&P 500 index fund. Instead of trying to outperform the market by actively picking and choosing individual stocks or timing the market, you simply invest in the index fund and hold your investment over a long period. The goal is to achieve returns that mirror the overall performance of the market index that the fund tracks, thereby providing diversification and reducing costs associated with frequent trading.

  • How risky is passive investing?

Passive investing does have risks – if the whole market goes down, your investment will go down too. However, since you’re spreading your money across many different investments, it’s usually less risky than trying to pick individual stocks. Over a long time, the overall market has tended to go up, even though it might go down in some years. It’s like a slow and steady approach to investing.

  • How do I start a passive investment?

To start passive investing, you first open an account with a company that lets you buy and sell investments, like a bank or an online platform. Then, you pick something to invest in, like an index fund or ETF (these are just big collections of different investments). After you buy your fund, you add money to it regularly and don’t sell it even if the market goes down. It’s a set-it-and-forget-it type of investing.