Passive Investment Strategy

In traditional finance, a known investment strategy called buy-and-hold is the opposite of more active strategies based on technical analysis and frequent trading.

Active strategies seek to profit from short-term price fluctuations or market timing, trying to beat the market. Beating the market means getting a greater return than the market as a whole.

Numerous academic studies show that it is impossible to beat the market systematically when particular market efficiencies are met. Other more descriptive studies show that neither the most successful hedge fund beat the market systematically.

So most investment strategies are passive, which means that instead of beating the market, the goal is to follow it, to replicate the whole market as accurately as possible. PIS tries to match the market or sector performance, and passive investing attempts to replicate market performance by constructing well-diversified portfolios of single assets.

Its introduction in the 1970s made achieving returns in line with the market much more straightforward. In the 1990s, exchange-traded funds, or ETFs that track major indices, such as the SPDR S&P 500 ETF (SPY), simplified the process by allowing investors to trade index funds as though they were stocks.

To see more about this subject, we recommend reading this bibliography: A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing - Burton G. Malkiel (Author)

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