Passive management

Buying a broad, pre-set basket of investments, an index, rather than trying to pick winners.

Example

A total stock market index fund that simply holds thousands of companies in proportion to their size.

Important

'Passive' describes the strategy, not the risk - a passive fund still falls when its whole market falls.

Related terms

• Active management — A fund manager, or you, picking specific investments in an attempt to beat a benchmark.
• Index fund — A fund built to track a market index, such as a broad stock index, rather than to beat it.
• Expense ratio — The annual fee a fund charges, expressed as a percentage of the money you have in it.

Lessons that explain it

• Active versus passive investing — Trying to beat the market versus simply owning it. One costs more and rarely wins; the other is unglamorous and usually does better after fees. (11 min)

All 578 terms in the Investing glossary