The main attraction of passive funds is their low cost. They have some other advantages over actively managed funds, including:
- They can provide full exposure to a broad, diverse market.
- They benefit when prices are rising across all sectors, as they tend to do early in bull markets.
- They can have some tax advantages over active funds.
Expense matters. For the low-cost market participation they provide, passive funds play a key role in a balanced investment portfolio.
One shortcoming is that an index does not control for risk.
Contributing: Mike Hoelzl
Learn more:
When Should I …consider actively managed funds?
What You Need to Know About the Passive vs. Active Management Debate, from the Financial Industry Regulatory Authority
“Active vs. Passive Management” in Mutual funds, from the Financial Industry Regulatory Authority
Active management, a Money Talk Video with Kyle Tetting
Correlation: How investment balance can shift, a Money Talk Video with Kyle Tetting
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(initially posted Aug. 30, 2017)