The debate over whether active investing or passive investing is the better approach has persisted for decades, among investment experts and everyday mutual fund investors.

Active investing typically involves a fund manager and a team of analysts who buy and sell individual securities in pursuit of optimal returns. Their ongoing research and investment decisions are based on a variety of factors, including a company’s fundamentals, price fluctuations, and economic and market trends.

When the debate became real

The most common form of passive investing is a fund designed to mirror a major stock market index. For retail investors, this began in 1976, when the Vanguard Group launched the First Index Investment Trust, which tracked the S&P 500 index. Now, 50 years later, mutual fund investors can track any of hundreds of Canadian and global stock or bond indexes.

Each approach has its benefits

Advocates of passive investing emphasize its positive track record. Since markets have historically trended upward over time, you can potentially succeed by tracking an index with a buy-and-hold approach over the long term. You don’t take risks on evaluating individual companies or anticipating trends. Also, management fees are lower.

A key reason investors choose the active approach is that it attempts to outperform the market, whereas passive investing is designed to follow the market. The investment team can target promising sectors and individual companies and change portfolio holdings as desired. In a bear market, they can shift positions in an effort to better cope with a challenging environment.

So, there is no definitive winner to the “which is better” question – it’s a matter of personal preference. What’s important in achieving your long-term financial goals is to stay invested and continue to invest regularly, whether you choose active investing, passive investing or a blend.