What Is Passive Investing?
Instead of trying to beat the stock indexes, track them instead.


When it comes to saving money for the long term – that is, ten years or more – investing your money usually delivers better returns than simply saving it up as cash in the bank. This is why any workplace pension you have, for example, will at least partly be invested in the stock market, and most of the rest will be in bonds.
Most of us don’t have the time, patience or enthusiasm needed to research, buy, and sell individual shares for our own portfolios. This is why most people hand their money to a fund manager to do it for them – the fund manager gathers the money together and invests it in a portfolio of shares. This is known as “active management”.
So far, so good.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
When you invest money with an active fund manager, you want to know that they are using their skill to deliver you the best return they can. In the jargon, you want to know that they can deliver “alpha”.
So if your fund manager is investing in big U.S.-listed stocks, for example, you would probably want to compare the returns the fund gives you with those of the S&P 500. You’d use the S&P as a “benchmark” – a figure that you’d expect the manager to beat over time.
This is where we hit a snag. Because the reality is that a majority of active fund managers struggle to beat their benchmarks – whatever they are – over any decent length of time. That’s partly because they also charge relatively high fees, which they have to earn back before you see any return yourself.
This is where passive investing comes in. Passive funds don’t try to beat a benchmark, they just try to track it. So a passive fund investing in U.S. stocks might just buy all the stocks in the S&P 500 in the same proportion as the index.
Because this isn’t very labor intensive and can be automated, the fees are lower too. So most of the time, an investor will get a better return - and pay less for the privilege - by opting for passive rather than active management.
There are some potential downsides though – to learn more about them, sign up for our Investing Weekly e-newsletter.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
The Upscale Upgrades Coming to a Country Club Near You
Young country club members expect more from their fees than access to a golf course. From teen rec rooms to red-light therapy, this is how clubs are upgrading.
-
I claimed Social Security six months ago at 62, but my checks are too small. What are my options?
We asked financial experts for advice.
-
Dow Dives 878 Points on Trump's China Warning: Stock Market Today
The main indexes erased early gains after President Trump said China is becoming "hostile" and threatened to cancel a meeting with President Xi.
-
Stocks Retreat as Shutdown Continues: Stock Market Today
While the main indexes closed lower today, Delta and PepsiCo gained ground on encouraging earnings reports.
-
S&P 500 Hits New Highs as Rally Resumes: Stock Market Today
Tech stocks were the biggest gainers on Wall Street today, with Nvidia and Dell making notable moves.
-
Rally Fades on Mixed AI Revolution News: Stock Market Today
All three main U.S. equity indexes opened higher but closed lower as a seven-session winning streak for the S&P 500 came to an end.
-
S&P, Nasdaq Hit New Highs: Stock Market Today
A late-day rally wasn't enough to lift the Dow into the green as its six-session winning streak came to an end.
-
Dow Adds 238 Points as UNH, CAT Pop: Stock Market Today
The lack of a September jobs report didn't seem to worry market participants, with the data delayed due to the ongoing government shutdown.
-
Stocks at New Highs as Shutdown Drags On: Stock Market Today
The Nasdaq Composite, S&P 500 and Dow Jones Industrial Average all notched new record closes Thursday as tech stocks gained.
-
S&P 500 Sees New Highs on Shutdown Day: Stock Market Today
Most of its components were in the red, but the S&P 500 Index still managed to hit a new intraday all-time high.