Active vs. Passive Management
Trying to beat the market versus trying to match it.
What is Active vs. Passive Management?
Active managers select securities and time decisions to outperform a benchmark, at higher cost and turnover. Passive management holds an index to match its return at low cost. The efficient market hypothesis is the theoretical case for passive investing.
Active vs. Passive Management: a worked example
An index fund at 0.04% versus an active fund at 0.80% that must beat the index by 0.76% a year just to tie.
More terms in Clients, Strategy & Tax
Sole Proprietorship
A business owned by one person with no legal separation from the owner.
General Partnership
Co-owners share management and unlimited liability; income passes through.
Limited Liability Company (LLC)
Limited liability for owners with pass-through taxation by default.
C Corporation
A separate taxpayer - profits taxed at the corporate level, then again as dividends.
S Corporation
A corporation that passes income through to shareholders, avoiding double tax.
Trust & Estate Accounts
Accounts run by a fiduciary - a trustee or an executor - under a governing document.
Foundations & Charities
Tax-exempt organizations investing for a mission, often in perpetuity.
Client Profile & Data Gathering
The financial and nonfinancial facts every recommendation must rest on.