Active or passive investing? Why not take the best of both

There is no one way to invest. In fact, for many years, investors have been debating different approaches to investing, most notably the active and passive approaches. 

The active and passive approaches

The active approach is based on actively trading assets: with this approach, investors invest a regular basis. Active investors closely track their progress to make sure they are not missing out on any changes that may occur, and continuously make changes to their portfolios. Their goal, typically, is to outperform one of the market’s indices. 

With this approach, active fund managers regularly make decisions, such as buying or selling, that have an immediate impact on their portfolios. This forces them to keep up to date with the markets at all times.

On the other end of the investing approaches’ spectrum is the passive approach. The purpose of passive investing is to steadily grow your portfolio. Passive investing, sometimes known as a buy-and-hold approach, entails purchasing assets with the intention of holding them for the long term. Choosing the passive approach often means investors don’t seek to outperform an index, but just to match its performance.

Passive fund managers who buy and hold, don’t make short-term decisions, but seek to benefit from long-term trends. Passive investors, unlike active ones, are not looking to profit from short-term price swings or market fluctuations.   

Some investors may ask themselves: Do I really need to choose one? The good news is: you don’t. If you’re looking for something in-between, an approach that allows you to be active at times and passive at others, the dynamic approach might be the right one for you.

Explore eToro’s Smart Portfolios

A dynamic approach to investing

The dynamic approach is a combination of both. Dynamic investors don’t change their portfolios on a daily basis in this sense, this approach is closer to the passive approach. Yet, more like the active approach, dynamic investors do make regular changes, like when new assets are added to the eToro platform, or when there’s an interesting IPO. eToro’s smart portfolios offer the advantages of the dynamic approach, while letting the eToro investment team do the fine-tuning. 

Many prominent investors use the dynamic approach. You may have heard of ARK’s Cathie Wood, but other players in the investment world are also combining the passive and active approaches into the dynamic one. Morgan Stanley’s Senior Investment Strategist Dan Hunt recently published an article, calling it “the best of both worlds.”  

Investing in Smart Portfolios with the dynamic approach 

Smart Portfolios are curated collections that allow eToro users to diversify their holdings by investing in a variety of assets with a single click. They’re geared towards long-term investors who want access to cutting-edge investment themes. Smart Portfolios allow eToro users to gain exposure to specific categories or trends in single, ready-made portfolios, based on analysis and market research.

This thematic approach to investing is intended to assist investors in taking advantage of market opportunities with no management fees, while focusing on the strategies that are most important to them, all while saving time.

Year after year, the demand for thematic investing grows, and industry heavyweights like Vanguard, Blackrock (iShares) and others are putting a lot of effort into researching thematic investment trends. Funds invested in themed ETFs now outnumber those invested in any other industry-defined category, according to FactSet and Goldman Sachs Global Investment Research1. Despite accounting for less than 2% of industry assets, thematic ETFs produce around 6% of revenue.

Invest dynamically with eToro’s Smart Portfolios

It doesn’t matter whether you are an active, passive or dynamic investor. eToro enables its users to invest in any way they like.