$6.$ Active and passive investing

An important aspect of your personal investment philosophy is your level of involvement in investing. That is$,$ do you want to be an active investor or a passive investor?

$$ If you carefully study the economy, market trends, and investment alternatives, and if you regularly buy and sell several times a year based on these factors, then you are investor.

$$ If you do not actively engage in trading securities or spend large amounts of time monitoring your investments, and if you make regular investments according to your overall investment philosophy, then you are investor.

Heidi and Bonnie are both investors, but they have very different approaches to their investing strategies:

Heidi

Heidi regularly consults with her investment manager, who provides tips and insights into the latest market trends. Hoping to achieve a high rate of return by using this market information, Heidi has instructed her investment manager to find the best time to buy and sell her various investments.

Heidi is investor.

Bonnie

Because Bonnie does not work for a company with a retirement plan, she opened a Roth IRA account through a local investment firm. Every month Bonnie contributes $$200$ to her Roth IRA account. These contributions are automatically invested into a diversified set of common stocks that Bonnie plans to hold for the next $5$ to $10$ years. Bonnie is using a buy and hold investment strategy to take advantage of the long$-$term growth of her investments.

Bonnie is investor.

Active investing depends on having enough information to make good investment decisions. The speed at which new information is reflected in investment prices is called $.$ Because it is difficult for many investors to gain access to enough information to make good decisions about individual investments, in most cases it is better for many investors to use a longer$-$term investment strategy.