Active versus passive investing

What does Active versus passive investing mean?

An active fund pays managers and analysts to pick investments in the hope of beating a benchmark index. A passive fund, such as an index fund or most exchange-traded funds (ETFs), simply holds what is in the index, so it needs few people and charges far less. Example: an active equity fund charging 0.80 percent a year on 10,000 costs 80 a year, while an index fund at 0.05 percent costs 5. Because many active funds fail to beat their benchmark after fees over long periods, as the SPIVA reports from S&P Dow Jones Indices show, money has moved steadily toward passive funds, which squeezes fees across the industry.