What distinguishes active investing from passive investing?

Active investing is primarily characterized by the strategy of frequently buying and selling securities in an attempt to outperform market indices. Investors who engage in active investing typically conduct in-depth research, analyze market trends, and make decisions based on their predictions of future price movements. The goal of this approach is to capitalize on market inefficiencies and achieve returns that exceed the average market performance.

In contrast, passive investing involves a more hands-off approach, usually through strategies such as index fund investing, where the investor seeks to replicate the performance of a market index rather than beat it. This method typically requires less frequent trading and does not involve attempting to time the market.

The other choices reflect inaccuracies about investment strategies: passive investing does not include market speculation, as it focuses on long-term holding rather than short-term trading. The idea that active investing is always more profitable than passive investing is misleading; while active investing has the potential for higher returns, it also comes with increased risk and costs, and many studies show that passive strategies often outperform active management over time. Lastly, passive investing does not require constant market monitoring; instead, it allows investors to take a relaxed stance, with a focus on long-term growth and minimal trading activity.