Major Differences Between Passive Versus Active Investing Strategies

A simple way to remember what is the difference between passive versus active investing strategies is to look at the core definitions of these terms – “active” versus “passive”. For instance, passive means not participating readily and, just the opposite, active means engaged in. Now, let’s combine those definitions with investing strategies to get the following:

  • Active Investing – An investing strategy where an investor is constantly trading or buying and selling with the ultimate goal to make quick gains with favorable market fluctuations.
  • Passive Investing – An investing strategy where an investor buys and holds onto investments over the long term. The goal for this type of investing is to build wealth over time.

These strategies can be implemented across multiple asset classes, but are commonly related to stocks and real estate.

stockmarketwatchingatworkActive Investing

Implementing an active investment strategy can be fruitful if you accurately time the market, but can also come with many downsides you should be aware of, as it may not match the financial goals you are trying to accomplish.

PROS

There is quick profit to be made in active investing, if you can accurately assess the market and gain from price fluctuations. By generating income quickly, you then have revenue at your disposable that you can use right away.

CONS

The biggest cons of active investing is the time and energy that go into this type of investing. In order to be successful at active investing, you will need to dedicate the time and energy into staying on top of market trends and react accordingly. This type of investing can be a full-time job for most and incur additional fees that are associated with trading or selling.

Active investing relates to real estate in the concept of buy and sell, or fix and flip, as it is commonly known as. Fix and flip real estate investors are looking to make a profit quickly by buying properties at a low price in growth areas, upgrading the property’s amenities, and then selling at a higher price to make a quick profit. There is a lot of sweat equity and time that goes into this type of real estate investing.

InvestmentWatchingatBeachPassive Investing

On the other side of the spectrum is passive investing that involves holding onto an asset over a longer period of time to maximize returns. Like active investing, there are benefits and disadvantages to this type of investing as well.

PROS

Since you are holding to the asset for longer periods of time, you don’t need to be as hands-on as active investing. In fact, you save time and energy by trusting that the market will fluctuate and by not selling your investment based on current economic trends. Additionally, you’re in good company as Warren Buffett has implemented this strategy for many years; he understands how beneficial it is to build long-term wealth over making a quick profit.

CONS

This strategy involves a lot of patience and trust in the market. You must remain calm when there our market fluctuations. If you react to the market too hastily, you could quickly lose all the wealth you’ve built up.

In regards to real estate, passive investing is known as the buy and hold strategy. This is when you hold onto a property for long-term and generate cash flow from tenants paying you rent. By holding your income property, you gain the benefits of building equity, appreciation, and tax benefits.

The Ultimate Passive Real Estate Investing Strategy

When you invest in real estate, using an active or passive strategy, you still run into the same issues of having to complete a long laundry list of things to do. From acquisition and renovation, to finding tenants, investing in real estate is a time-consuming feat for any investor.

That was until now.

When you partner with HomeUnion, we handle all the responsibilities that come with investing in real estate passively. We take care of finding you investment properties, acquisition, and then managing those properties, from tenant screening to conducting the rehab. HomeUnion – it’s the ultimate passive real estate investing strategy.

Let us show you how you can passively invest in real estate successfully, call us at 888-276-0232 or sign up for a consultation when you have free time.

 

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