Active Vs. Passive ETF Investing
exchange traded funds or etfs can be broken into two categories, active and passive. etfs that imitate or track a stock index such as the s&p 500 are passive etfs. etfs that are directed by investment teams looking to ? index are called active etfs. the main advantage of a passive etf is that it closely matches the performance of index it's designed to mimic. the etf manager simply duplicates the target index or its assets as efficiently as possible. this hands-off approach means lower fees for investors. but a passive etf will not outperform the index it's meant to track. this means that a passive etf's managers will not respond to changes in the market and attempt to reduce their impact on the etf. if the s&p 500 crashes so would passive etf that is designed to track it. the advantage of active etfs is that their managers may be able to outperform passive etfs using their knowledge and skills to buy, sell and implement profitable investment strategies. the disadvantage comes in the form of higher fees these etfs charge to investors. moreover, in order to beat the market, active managers tend to hold fewer securities. this means that when an active etf's manager is wrong about the market, the etf can take a ?. actively and passively managed etfs have different strengths that can make them an ideal fit for a portfolio. but investors must do their own research to figure out which etf is best for them.