Passive Investing

The term passive investing denotes an investment strategy which involves a minimal amount of transactions and minimal involvement on the part of the investor.

In a narrower sense of the term, passive investing denotes passively-managed investments which require minimal administration on the part of investors, brokers, wealth managers, fund managers and other parties making up the investment chain.

Investments in exchange traded funds (ETFs), which are based on an index rather than individual securities, are a good example of passive investments because in addition to minimal involvement by investors, they also require minimal administration on the part of fund managers. The reason for this is that ETFs simply mimic exchange indexes because their portfolios are made up of the same assets which underly the index they track, with little need for rebalancing or active trading or investment by fund managers.

Other examples of passive investments include buy-and-hold stock investments, precious metal investments, bond investments, savings account investments and medium-term note investments.

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