Greg Brown: Passive investing means you’re going to own investments as opposed to trying to buy and sell them. You’re going to stay in the market instead of jumping in and out, trying to time the market. Active management is the opposite. It’s thinking that you can beat the averages by selectively buying certain stocks and certain investments and selling them at different times to out-perform the market. The problem though, is that decades of research and statistics suggest that on average, 80% of active managers actually under-perform the market every year.
As a retirement investor it’s impossible to know which 20% are going to beat the market, and even if you do pick the right one, the next year, he won’t be successful. The year after that, maybe he’ll do even worse, and then maybe the third or fourth year later, he’ll beat it again. But when you average it all out, you’re not the one who comes out on top.
So, for me, the simple difference is owning investments in the whole market, instead of selecting individual stocks and trying to time the market.