Which Investing Strategy Is Better?

Let's look at the two fundamental investment philosophies of the world today: active and passive investing. [Shield] AN OXFORD CLUB PUBLICATION [Profit Trends]( SPONSORED [5G Stock CRUSHES Earnings!!]( [5G SuperStocks]( Wall Street is loading up on shares of one 5G SuperStock (with more than $2 billion invested!). Why? Because the stock brings in more cash than IBM, Facebook and even Google! Yet it trades for just under $5. [Get the scoop on the 5G SuperStock right here.]( Editor's Note: Today's article was written by our dear friend, the CEO of TradeSmith, Keith Kaplan. The Oxford Club has worked with TradeSmith for more than a decade now. If you've attended any of the Club's events, you've likely visited a TradeSmith booth and heard Keith speak. But if you haven't had the privilege of meeting Keith and learning about TradeSmith's innovative investor resources, you'll soon have a chance to... On December 29, at 8 p.m. ET, Keith will sit down with Chief Investment Strategist Alexander Green and Chief Income Strategist Marc Lichtenfeld to discuss [how to boost your Oxford Club returns by up to six times in 2022](. This is such a valuable presentation that we've arranged for Oxford Club Members to attend for FREE. [Click here to register now for The 2022 Stock Market Fast Track.]( - Kaitlyn Hopkins, Assistant Managing Editor Active or Passive: Which Investing Strategy Is Better? Keith Kaplan | CEO | TradeSmith [Keith Kaplan] Back in 2008, Warren Buffett made a very bold bet against hedge funds. With their high management and performance fees, hedge funds are actively managed by professional investors. Buffett believed that the average person was better off investing in an index fund and taking advantage of the longer-term benefits of "passive" investing. The famed value investor and CEO of Berkshire Hathaway bet $1 million against a hedge fund manager named Ted Seides, then-head of Protégé Partners LLC. He bet that the S&P 500 Index would have a better 10-year performance than the hedge fund. In 2017, Seides conceded defeat. In a Bloomberg opinion piece, he wrote, "For all intents and purposes, the bet is over. I lost." The bet was important because it publicized the two fundamental investment philosophies of the world today: passive and active investing. I'll break down the pros and cons of a passive long-term approach today. Defining Active Versus Passive Active investment strategies are exactly as they sound. Money managers and retail investors actively buy and sell stocks based on the expected performance of those stocks. You've probably heard of Bill Ackman, the founder of Pershing Square Capital Management. Ackman buys large amounts of a company's stock, aims for a specific target performance and tries to beat a benchmark's performance, typically the S&P 500's. Passive investing, however, is measured by those benchmarks. For example, investors can purchase index funds or exchange-traded funds (ETFs) that replicate the performance of an index, like the S&P 500. The SPDR S&P 500 ETF (NYSE: SPY) tracks overall performance of the entire index of the 500 largest publicly traded companies in the United States. Rather than hand-picking stocks or bonds for the fund, a fund manager would - in this case - buy all of the assets that the index tracks. SPONSORED [5G Triggers Buying Frenzy!]( Some of the world's richest men ([identities revealed here]( have invested $49.7 billion in 5G. These men have built their fortunes on their ability to profit from emerging trends. [Here's how you can ride their coattails...]( The Pros of Passive Investing Anyone who invests passively in an index fund or ETF should be buying and holding for the long term. Effectively, the goal is to maximize the return from the performance of the entire stock market. The stock market has a historical bias to the upside, so investing in an index fund offers this benefit. While there may be short-term downturns, one can look at the performance of the S&P 500 over the past decade and see that patience pays off. Other primary benefits of passive investing include the low costs associated with index funds and the diversification benefits. The broad allocation of stocks in an index fund or index-tracking ETF enables investors to benefit from the absolute performance of that index. And I must highlight that passive investments can produce better after-tax results. With an active strategy, investors might be compelled to buy and sell within a 12-month horizon. The U.S. tax code requires that investors pay any capital gains generated within 12 months as ordinary income. However, any investment held longer than 12 months that is sold will operate on long-term capital gains taxes, which can be significantly lower than taxes for ordinary income levels. The Cons of Passive Investing The cons of passive investing might not impact the morale of a long-term investor, but they are worth noting. First, you're not going to beat the market as a passive investor because you're effectively buying the total performance of the market itself. In fact, after fees, you'll trail the benchmark by a small amount. Second, passive investing is, well, passive. It might be a little boring on the surface. So if you're a person who likes to trade stocks and conduct deep research, you should know you're not going to get the same action. Next, you're not going to be able to react to any significant downturn in the market right away. Your money is tied directly to the whims of the broader market and the macroeconomic events that might cause a sell-off. However, there are various strategies that you can employ in order to reduce broader risk and potentially maximize your returns. Even if you are investing for the long term, you need to treat the S&P 500 and other indexes as you would treat any other stock. Therefore, the same rules apply around trailing stops, momentum and risk management. With Trade360 by TradeSmith, you will know the exact moment you've stopped out of an index fund like the SPDR S&P 500 ETF. By following these rules, you'll also know when momentum has returned to the market and it's time to reenter. Following such rules enables you to potentially buy back in at a lower price and potentially earn far greater returns over the longer term. To learn more about how to use Trade360 to increase your Oxford Club returns by up to six times in 2022, I invite you to attend my free event, [The 2022 Stock Market Fast Track]( on December 29 at 8 p.m. ET. Oxford Club Chief Investment Strategist Alexander Green and Chief Income Strategist Marc Lichtenfeld will be joining me. I hope you will too. [Click here to register for the free event.]( Enjoy your day, Keith MORE FROM PROFIT TRENDS [Energy Trends 2022 Hero Image]( [Top 5 Renewable Energy Trends for 2022]( [Video - Best Of Market Trends 2021]( [My Best and Worst Calls of 2021]( [Idea Hero Image]( [Why the Best Investors Copy Other People's Ideas]( [Shrugging Shoulders]( [Why I'm Shrugging Off Omicron Market Concerns - and You Should Too]( [Facebook]( [Facebook]( [Twitter]( [Twitter]( SPONSORED [Former CBOE trader reveals #1 stock EVERY WEEK!]( [1 Stock Every Week]( It's delivered an 83% win rate, but he guarantees he'll beat that! 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