There are two major types of investing strategies in this world.  You have the passive and the active.  The one you tend to hear about the most is the active investment strategy.  You never hear about the former type, which is the kind that Finance World recommends for the average, retail investor.  This is a quick overview of the two approaches.

Active investing is what you think about the most when it comes to this.  This is where you pick individual stocks or other assets that you think will outperform the market.  You do this with the idea of beating market returns over time.

The other way that people do this is by essentially doing stock market trading.  Most hedge funds do this through speculation and other market plays.  This is where market timing comes in.  They try to predict the direction of a particular security and try to leverage that for profit.

The problem with both of these methods is that they fail most of the time.  Very few players in the market have been able to utilize active investment strategies with great success.  Most tend to under-perform the market averages.  That is a shame because of the time and money that goes into this approach.

Then you have the passive investing strategy where you don’t try to beat the market, but to grow alongside it.  That’s not such a bad thing considering the US stock market has been able to achieve 8-10% growth over the last 50 years.  If you include the principle of compounding interest, this can grow to be a lot of money over time.

The other advantage to the passive strategy is that it doesn’t cost as much.  You simply invest in an index fund, which cost less than an actively managed mutual fund.  They also tend to beat the returns on most of these funds as well.

Filed under: Stock Market Trading Software

Like this post? Subscribe to my RSS feed and get loads more!