The difference between active fund and passive fund;
The biggest difference is that index funds are passive funds and stock funds are active funds.
1, investment method
The investment methods provided by index funds are more convenient and simple. Because they don't need to choose their own stocks, investors don't need to worry about whether fund managers will change their investment strategies. It doesn't matter who the fund manager is Equity funds (non-index funds) have a great relationship with fund managers. As the saying goes, changing coaches is like changing knives, and the funds managed by different fund managers are often very different. Therefore, investors who choose equity funds need to carefully choose fund companies and pay attention to whether the invested funds are managed by fund managers with strong strength and excellent past performance.
2. Investment cost
Low cost is the most prominent advantage of index funds. Fund expenses mainly include management expenses, transaction expenses and sales expenses. Because index funds adopt the holding strategy and do not need to exchange shares frequently, their costs are generally much lower than those of active funds such as stock funds, and the cost difference in this respect can sometimes reach 1%-3%.
3. Investment risk
The main risks faced by index funds and stock funds are different.
Index funds mainly face systemic risks, which cannot be eliminated by diversification. When the market is good, index funds rise faster than other funds, and when the market is bad, they fall faster than other funds, lacking resilience. For example, an index fund that tracks the Shanghai Stock Exchange index passively and an ordinary stock fund, theoretically, the trend of the index fund should be completely consistent with the broader market, while the performance of the stock fund may be better or worse than the broader market.
In addition to the risk of market fluctuation, the profit and loss of stock funds largely depends on the fund manager's choice and judgment of the market and individual stocks. If the stock market skyrockets, and the fund manager does not make a correct judgment, add positions or have no time to add positions, then the expected annualized expected return of stock funds will be greatly reduced, compared with the expected annualized expected return of index funds. But by the same token, in a unilateral decline market (that is, stocks only fall but not rise), under the correct judgment, stock funds can often reduce their losses by lightening their positions in time and control the decline losses under index funds.
Generally speaking, index funds are suitable for people who don't have much time and energy to invest, and the suitable investment opportunity is when the market is relatively depressed. Equity funds have high risks, so they are suitable for people who can bear high risks and find reliable fund companies and fund managers.