Passive Management (Indexing)

An investment strategy that replicates a market index to match its returns at minimal cost.

Portfolio Management

Definition

Passive management seeks to match, not beat, a benchmark index by holding its constituent securities in proportion. Index funds and ETFs provide broad market exposure at extremely low cost (0.03-0.10% fees). The efficient market hypothesis supports indexing—if prices reflect all available information, trying to beat the market is futile after transaction costs.

lightbulb Example

A total stock market index fund holds 3,500+ stocks in proportion to market cap, charges 0.03% annually, and consistently delivers market returns minus minimal fees. Over 20 years, it outperforms 85%+ of active managers.

verified_user Key Points

  • Replicates a benchmark index at minimal cost
  • Fees typically 0.03-0.10% vs 0.50-1.50% for active
  • Outperforms most active managers over long periods
  • Supported by efficient market hypothesis

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