InvestorQ : What are the big benefits of passive investing?
indhumathi Sayani made post

What are the big benefits of passive investing?

rhea Babu answered.
3 years ago
As Buffett himself acknowledged, the big advantage that passive investing has brought to investors is a low-cost approach to creating wealth over the long run. Passive investing typically works over the long run and hence, by default, it instills a long-term perspective in investors. This has normally worked in favor of small investors in the long run. Since passive investors are typically into indices, there is absolute transparency on the portfolio strategy of the index fund. There is little by way of surprises in terms of asset exposure and that is positive for investors. When you invest actively, you take on Beta (market risk) and also take on company risk, industry risk, fund manager decision risk, fund manager eccentricity risk etc. In passive investing, your funds are more predictable and therefore in risk-adjusted terms higher. In tough market conditions, your lower costs can make a huge difference to returns. For example, the total expense ratio for an active equity fund is around 2.5% while for passive funds it is less than 1.3% on an average. So you get around 1.2% advantage right from the very beginning.