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Lesson 7 transcript

Here, we explain a few different ways you can approach investing. You may find that your investment style is a mix of the below, especially over time as your financial goals change, as you grow older – or as you learn more about investing.

Active vs Passive

There are two main philosophies when it comes to investing. The approach that resonates with you is likely to become the bedrock of your investment strategy.

There’s no ‘right or wrong’ approach, and you can incorporate both within your overall investment portfolio. Ultimately, the approach you choose may come down to a few things:

  • Your time and dedication to investing, or how ‘hands on’ you want to be
  • How much you’re willing to spend on fees
  • Your tolerance to risk

Active investing

Active investors try to identify good companies (or other assets) to invest in, with the aim of outperforming a broad market index, such as the ASX 200, the S&P 500 or the Nasdaq.

Stock-picking is more difficult than it may seem

This approach requires lots of research and confidence when making investment decisions, and typically involves higher risk. This is why some active investors choose to pay the ‘experts’ – professional fund managers to actively manage their investments on their behalf.

Actively managed funds typically have relatively high management fees, sometimes with an additional performance fee for those years when they outperform the benchmark index.

Over the years, fees can really eat into investor returns.

The potential for actively managed funds to outperform the market comes down largely to the skill of the fund’s investment manager, and to the fees they charge.

Passive investing

Being an active investor, and choosing investments like individual stocks, can be overwhelming. The seemingly endless opportunities and the pressure to ‘make the right choice’ can make for ‘analysis paralysis’.

So, if you want to invest your money in stocks, but don’t have the expertise or time to select specific companies yourself, or the budget to spend more on fees for an active fund manager, passive investing – usually by investing in an ETF – is a popular option.

Passive investing is often seen as a cost-effective way to invest, and tends to suit those who would rather take more of a ‘set and forget’ approach and have a lower risk tolerance than active investors.

A passive investor typically has a buy and hold mentality, trading minimally with the goal of building their wealth over the long-term and ignoring short-term setbacks or market downturns. Their aim is to track the performance of a market index in anticipation that their portfolio will appreciate over time.


Active investing

Passive investing

Which approach works better?

Other investing strategies




Responsible investing

Betashares Capital Limited (ABN 78 139 566 868 AFSL 341181) (Betashares) is the issuer. Before making an investment decision, investors should consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD), available at www.betashares.com.au. This information does not take into account any person’s objective’s, financial situation or needs and is not a recommendation or offer to make any investment or to adopt any particular investment strategy. Investors should consider the appropriateness of the information taking into account such factors and seek financial advice. Investments are subject to investment risk, investment value may go down as well as up, and investors may not get back the full amount originally invested. ASIC’s MoneySmart website has useful information for people considering investing. The MoneySmart resources can be found here – https://www.moneysmart.gov.au/investing. ASIC’s MoneySmart website has no affiliation with Betashares.