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When I look at the Malaysian investor forums, I see a lot of these questions:
“Is this stock good?”
“What price should I buy in?”
“Wah drop liao! Should I sell or buy more?”
The questions seemed nothing wrong when we started investing in stocks. At least, this is how most newbie investors (including me) start their investing journey.
But as time goes by, I realize that this approach of stock trading requires so much attention and time to be actively participating in the stock market.
Is there any other way that is less stressful than this?
Well, this is what I discovered:
In this week’s newsletter, let us talk more about active investing and passive investing.
What is Active Investing
Active investing is a method by which investors will pick and choose which stock to invest. In order to pick the right stock that gives a great return, investors have to devote time and effort to building the best stock portfolio.
The goal of active investing is to outperform the stock market performance by getting a higher return than the market for your investment.
Since you already put in so much time and effort, tak kan only settle for a moderate return, right?
This is how a profile of an active investor may looks like:
- Trade individual stocks, cryptos, and derivatives (options, warrants)
- Pick a few stocks that has potential in growing revenue
- Study and analyze potential companies that are profitable
- Possess a high level of market analysis and expertise
- Follow and read stock news frequently
- Regularly rebalance the stock portfolio
What is Passive Investing
Passive investing is a method that focuses on long-term investing and favors simple investments such as index funds. It is a hands-off approach by investing in the whole market and skipping the tedious process of picking stocks.
When you choose passive investing, the goal is to have a balance between investing and living life by settling down with an average but decent return from the stock market.
By passive investing, you have more time and energy on things you love in life.
Life is short anyway!
This is how a profile of a passive investor may looks like:
- Invest in index fund ETFs, robo-advisors
- Don’t bother to pick individual stocks
- Don’t have to analyze any company, just buy all of them
- Only know a few basic about stocks and market
- Read stock news by choice, don’t have to follow up closely
- Very little to no portfolio rebalance is done
Pros & Cons of Active & Passive Investing
As usual, there are good sides and bad sides to each approach.
Here are the pros and cons for active and passive investing:
Which one is Suitable for you
To know which one suits you, you have to understand what your goal is with your invested money.
If you’re a finance geek that looks for a maximum return for your investment, then active investing will be a better approach.
If you’re a busy person that looks for a decent return on your investment, then passive investing suits you more.
I’ll be honest. I started with active investing, but ended up using passive investing as my long-term approach for stock investment.
If you ask if I will go for active investing again, it’s a big NO from me, for now. I don’t want to give up the time and simplicity that passive investing provides.
In Summary
Many investors love to invest in stocks in an active way as it sounds more fun. But not many know that investing is supposed to be boring.
But I don’t want to be the one that says active trading is bad, passive investing is good. If you have a lot of fun and/or earn a lot from active investing, then continue with it with good risk management.
If you are just about to start investing in stocks, I think it’s a good idea to try both approaches. After experimenting with both ways, you can then decide to choose either one or even doing both at the same time if you want.
That’s all for this week, my friend!
Talk with you again next week.
Your Money Buddy,
Marcus
Whenever you’re ready, there are 2 ways I can help you:
1) Book a 1-to-1 Call Session with me to pick my brain, whether it is about investing, money management, or any topic you’re interested to learn
2) If you’re not sure which platform to invest your money, here are 3 platforms that I personally use:
→ Rakuten Trade – Where I invest in US index fund ETFs. Get RM30 worth of RT points if you register & unlock foreign trading with my referral link.
→ Wahed Invest – Where I invest in Shariah-compliant US ETF. Get free RM10 if you register a new account with my referral code “markeo1”
→ Versa – Where I invest my emergency fund for a 4.3% return (up to RM30k). Get free RM10 if you register a new account with my referral code “AL9JZJ9H”