Glossary
Passive Investing
Passive investing is a strategy of holding broad market index funds for the long term rather than trying to beat the market through security selection or timing.
The approach accepts the market's return, minus very small costs, on the evidence that the average active dollar must underperform the market after fees — arithmetic, not opinion. Its tools are index mutual funds and ETFs; its habits are low turnover, low cost, and patience.
Why it matters in practice
Over multi-decade horizons, most actively managed funds have trailed their benchmarks, and past winners have rarely persisted — which makes the passive route a favorite among fiduciaries selecting defaults for other people's money. "Passive" describes the trading, not the investor: allocation, saving rate, rebalancing, and staying invested through downturns remain active decisions, and they drive most of the outcome.
Related terms: Index Fund · ETF (Exchange-Traded Fund) · Alpha · Expense Ratio · Diversification