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Robinhood recently came out with a great ad called “We are all investors“.
The message centers around the fact that pretty much every decision we make is an investment in one form or another.
And honestly I think they’re right.
We make all sorts of investments; long term, short term, aggressive, poor, etc.
Today I’d like to really hone in and break down two different types of investing strategies, active vs passive.
We’re going to see a couple of the pros and cons to both, and what alternatie asset I recommend depending on what class of investment you’re looking to make.
Active
First off let’s define what active investing is.
Investopedia refers to active investing as…
A hands-on approach that requires that someone act in the role of a portfolio manager. The goal of active money management is to beat the stock market’s average returns and take full advantage of short-term price fluctuations.
Investopedia
Active alternative investors are most definitely going to be looking at hedge funds and venture capital.
Hedge funds entire purpose is to beat the market, and the potential is enormous.
Just look at some of these emerging crypto guys if you want to talk about massive returns.
These funds are very engaged and react based on events and news that happens in the world that affect the markets.
However, the risk also grows substantially when you’re cash is fluid.
Venture Capital is most definitely a growth/active asset.
The goal is to try to 10, 20, even 100x your initial investment by going in on these early stage concepts.
Normally these companies could truly go either way, but the possible reward is what draws in top investors.
Passive
Back to Investopedia, here’s what they’ve go on passive investing…
If you’re a passive investor, you invest for the long haul. Passive investors limit the amount of buying and selling within their portfolios, making this a very cost-effective way to invest. The strategy requires a buy-and-hold mentality.
Investopedia
If this is more of your mindset than an excellent alternative asset for you is going be real estate.
Real estate is very value oriented, you have a physical building that represents the money you have put in.
It’s consistent and stable. You’re not going to make some outrageous return on real estate – most managers are looking at somewhere between a 10-20% return off of their properties – but it’s a very safe bet.
Fund of funds are largely passive. A fund of funds is where capital is raised by someone and then allocated to different fund managers with various assets and projects.
This money is always put in with a buy-and-hold mentality, and there is not really any active day to day management.
Private Equity is kind of somewhere in the middle. Perhaps leaning a little bit more towards passive.
It’s something that doesn’t quite have the ceiling of hedge funds or VCs, but gives you a sense of security similar to real estate.
Conclusion
It’s hard to say which strategy is superior to the other.
The truth is, it’s not like there really is a bad option, it just depends on what you’re after.
If you’re comfortable with risk and are seeking a high return on your initial investment, then let’s get some active investing going on.
For those of you who want a more stable and long term approach, I would very much recommend a fund that has a passive strategy.
As you identify what you’re really trying to achieve with your money, you’ll be able to feel confident about putting your capital in a given fund.
Hope this was helpful.
Take Care,
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