Active investment definition (2024)

FAQs

What defines active investment? ›

Active investment is a form of investment strategy that involves actively buying and selling assets in the hope of making profits and outperforming a benchmark or index. An example of an active investor is a hedge fund manager, who constantly monitors the market and trades when they see an opportunity to make money.

Active investing seeks to outperform – or “beat” – the benchmark index, while passive investing seeks to track the benchmark index. Active investing is favored by those who seek to mitigate extreme downside risk, while passive investing is often used by investors with a long-term horizon.

Investment definition is an asset acquired or invested in to build wealth and save money from the hard earned income or appreciation. Investment meaning is primarily to obtain an additional source of income or gain profit from the investment over a specific period of time.

In general terms, active management refers to mutual funds that are actively managed by a portfolio manager. Passive management typically refers to funds that simply mirror the composition and performance of a specific index, such as the Standard & Poor's 500^® Index.

An example of a popular active investment product is a mutual fund, which can include stocks, bonds, and money market instruments. Unlike index funds, which track and watch index movements from the sidelines, a mutual fund is managed by a money manager who makes trades actively.

“Active” Advantages

Flexibility – because active managers, unlike passive ones, are not required to hold specific stocks or bonds. Hedging – the ability to use short sales, put options, and other strategies to insure against losses.

An investment is an asset or item accrued with the goal of generating income or recognition. In an economic outlook, an investment is the purchase of goods that are not consumed today but are used in the future to generate wealth.

The meaning of investment is putting your money into an asset that can grow in value or produce income or both. For example, you can buy equity stock of a listed company in the hopes of receiving regular dividends and capital appreciation in the form of the share price.

Investing, broadly, is putting money to work for a period of time in some sort of project or undertaking to generate positive returns (i.e., profits that exceed the amount of the initial investment).

Active funds

The job of an active fund manager is to pick and choose investments, with the aim of delivering a performance that beats the fund's stated benchmark or index. Together with a team of analysts and researchers, the manager will 'actively' buy, hold and sell stocks to try to achieve this goal.

How do you know active or passive? ›

In active voice, the subject of the sentence is the one doing the action. Robert Hills [doer of the action] designed the Washington Monument to honor George Washington. In passive voice, the subject of the sentence is not the one doing the action: it will receive the action instead.

The easiest way to determine if an ETF is active or passive is to read the prospectus. For example, the ARK Innovation ETF (ARKK) summary prospectus says that it's an “actively-managed exchange-traded fund” in the “Principal Investment Strategies” section on the first page.

Auto choice is meant for investors who want to cut down on their allocation to equity with advancing age, while the active choice is ideal for investors who want to take the destiny of their investment in their own hands.

Active and index investing are two main approaches for choosing individual investments, like choosing specifically which stocks and bonds to own. Active investing generally aims to “beat” the market's returns, while index investing instead aims to match it.

Virtually all real estate investments are considered 'passive income'. That's because you generate revenue from the money that you invested rather than the work that you do. You don't actually work for the income in the same way that you would earn a job salary. However, there may be some crossover.

An actively managed fund is created around a theme, and the funds invested are similar to the theme. Example, equity or debt funds. The fund manager is actively involved in the buying and selling of assets in these funds and aims to generate returns that will beat the market index.