Methods of Investing | Things to look at when investing | Allocation, Allocation, Allocation

Two main methods of investing: Active Investing & Passive Investing

Active Investing

Active investing, also known as stock picking is a financial strategy of continuous buying and selling of investments in an effort to outperform the market. There are many active strategies but all of them revolve around regularly buying and selling investments strategically for investment returns. The major obstacles and reasons active investing strategies do not work are:

Markets are unpredictable Investment prices are unpredictable

Risk and return are correlated Its hard to measure the performance

Its expensive It underperforms markets

Human Error

Passive Investing

Passive investing is a financial strategy of buying and holding investments for long periods of time. The Main form of passive investing is called Indexing. An investor following a passive index investing strategy could invest in investments that mimic indexes. Indexes, or benchmarks, are baskets of stocks or bonds that represent markets or market segments. Here are a few examples of indexes:

S&P500 - 500 largest US companies

S&P/TSX Composite Index - 234 largest Canadian companies

DEX Universe Bond Index - benchmark for Canadian bonds

FTSE 100 - 100 largest UK companies

The major benefits of passive investing strategies are:

Low Cost (0.30% Versus 2.65% Active Funds) Better performance than active management

Easier to measure performance (using benchmarks) Easier to track performance

Peace of Mind More control

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Asset Allocation - is one of the key determinants of success when investing. Without the right allocation your investment portfolio could be completely off track.

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