Active Management
Financial term in the Investing category
Definition
An investment approach where fund managers make deliberate buying and selling decisions to outperform a benchmark index. Active funds charge higher fees than passive funds, and studies show the majority of active managers underperform their benchmarks over time.
Related Terms
Passive Investing
An investment strategy that aims to match market returns rather than beat them, typically through index funds and ETFs. Passive investing relies on broad diversification and low costs, and research shows it outperforms most active managers over long periods.
Expense Ratio
The annual fee that all funds or ETFs charge their shareholders, expressed as a percentage of assets. Lower expense ratios mean more of your money is invested rather than going to fees.
Benchmark
A standard index or portfolio used to measure investment performance. Common benchmarks include the S&P 500 for large-cap stocks and the Bloomberg Aggregate Bond Index for bonds.
Frequently Asked Questions
What is Active Management?
An investment approach where fund managers make deliberate buying and selling decisions to outperform a benchmark index. Active funds charge higher fees than passive funds, and studies show the majority of active managers underperform their benchmarks over time.
Why is Active Management important in personal finance?
Active Management is an important investing concept that helps individuals make better financial decisions. Understanding Active Management can improve your financial planning and help you achieve your money goals.
How does Active Management relate to Passive Investing?
Active Management and Passive Investing are related financial concepts. An investment strategy that aims to match market returns rather than beat them, typically through index funds and ETFs. Passive investing relies on broad diversification and low costs, and research shows it outperforms most active managers over long periods.
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