PASSIVE MANAGEMENT

More commonly-known as Indexing, Passive Management refers to an investing strategy that does not necessarily rely on active exposure. What it does however is replicate a market index. A good example would be the S&P 500 and the Dow Jones Industrial Average (DJIA).

The general idea behind Passive Management is reliant on human beings’ inclination to inconsistently compete or outperform the market. As this is the case, people tend to just go with its flow, thus warranting the term, “passive”. The concept jives well with Efficient Market Hypothesis (EMH) as it implies that the present market prices already affect all existing information and that humans would not be able to beat the market for the long-term.

Traders would benefit from passive management through its provision of lower fees and operational costs and reduced risks.