First of all, it is important to define the terms “assets” and “liabilities”. This is very important to understand how investments work. Liabilities are assets, the problem is that they don’t make money. Even worse, it can lose money. This is quite difficult to explain, so it is worth mentioning a few more specific examples: it can be a debt for the loan of money or other obligations.
An asset is the opposite of a liability, it is an element of the patrimony that brings in money. It can be a real estate investment or a savings with interests higher than the inflation. Here, we will focus on two methods that seek to replenish a person’s assets. These are the passive and the active investment. Details.
Passive investing: explanations
Many investors are still unaware of the different methods of investment management. For this reason, we give you some clarifications on some financial techniques. If you want to invest passively, the first thing to do is to buy stocks of large, solid and risk-free companies. It is best to invest in companies that have demonstrated their ability to withstand market fluctuations and economic problems.
Passive investors wait for their stocks to appreciate in value. They then benefit from a more or less important profit without having to buy or sell all the time. However, it is advisable to use profits wisely. The most experienced investors seek to buy new securities with the surplus money. This is a very special and effective strategy to get the most profit possible. However, there are some drawbacks. For example, the time for a stock to gain value is indeterminate. In some cases, you have to wait a few years to get some money. Admittedly, this is quite frustrating, but unfortunately it is not uncommon.
How does active investing work?
The active investment method is quite difficult to master, that’s why it is not suitable for all investor profiles. Indeed, the latter will have to manage their portfolio rigorously. They will always have to keep an eye on the assets and liabilities of their assets. They will have to be adaptable and have a great business sense. Moreover, their position must be revised according to market fluctuations. This is quite a difficult exercise and requires a great deal of tact. However, it should be noted that the return will be higher and faster. But the risk is real and it is complex to predict a stable income for the long term. Note that in all cases, the operation is quite simple, the active investor buys and sells a lot of securities depending on the market.
We can say that the main difference between the passive investor and the active investor is that one is looking for an average and long term return while the other wants to make quick profits depending on the market. Both methods have their advantages as well as their disadvantages, it is thus advisable to analyze well its needs before choosing one of these methods of investment.