| In the world of investing there are many different | | | | also generally far greater than in passive investing. |
| investment vehicles and strategies but they can | | | | Common examples of active investments are |
| be split into three broad categories. The | | | | share, options, futures, and currency trading, buy |
| advantage of thinking from this point of view is | | | | and hold share portfolio building, buy and hold |
| that it makes it easier to decide which form of | | | | residential or commercial property, and property |
| investing or which combination of investing will | | | | trading. |
| best suit you. | | | | Creative Investing |
| Let's have a look at the three broad categories | | | | With creative investing you actually change the |
| of investing and look at the advantages and | | | | investment in some way that is designed to |
| disadvantages of each. | | | | manufacture profit. This form of investment |
| Passive Investing | | | | requires a lot of skill and experience but if you |
| Passive investing is when you put the investment | | | | have that skill and experience then you can |
| decision making into the hands of someone else, | | | | create huge profits by being able to visualize what |
| ideally an expert investment manager. | | | | your investment could be once you have applied |
| The advantages of passive investment are that | | | | your imagination to it. For this reason creative |
| you are not required to have any investment | | | | investing is often described as turning thought into |
| expertise and you don't have to invest your time, | | | | money. |
| only your money. The disadvantages are that | | | | For example if you are a property developer |
| firstly you have relinquished your control over | | | | there is a huge variety of possible developments |
| your money and secondly the returns for these | | | | that you could design and build on a particular |
| types of investment are usually uninspiring. | | | | piece of land. Amongst that huge set of |
| Common examples of passive investing are | | | | possibilities there are also a huge range of |
| savings accounts, government bonds, property | | | | potential outcomes ranging from high profit to |
| trusts and mutual funds. Most people invest for | | | | huge loss and including all the points in between. |
| their retirement under some form of passive | | | | The advantages of creative investing are that it |
| investment that usually has special tax | | | | has the highest profit potential and the highest |
| concessions which vary from country to country. | | | | degree of control and flexibility. The disadvantages |
| Active Investing | | | | are that it requires the highest degree of |
| With active investing you take an active role in | | | | knowledge, usually involves borrowing large sums |
| managing the investment. This form of investing | | | | of money and also has a huge potential for large |
| could have a long term focus such as a buy and | | | | losses if you get it wrong. |
| hold share portfolio or it could be a short term | | | | Common examples of creative investments are |
| focus such as futures trading. | | | | property development, property renovation, |
| To do well in active investing you need to have | | | | business renovation and new product |
| considerable knowledge of the investment vehicle | | | | development and marketing. |
| or vehicles that you are using. You also need to | | | | When you are deciding which of these three |
| understand the basic principles such as when to | | | | broad categories best suits you need to consider |
| collect profits, when to cut losses and how to | | | | your knowledge and experience, your strengths |
| analyze the market. You also need the emotional | | | | and weaknesses, your access to resources, |
| strength to apply these strategies as required | | | | including time and money, and in particular you |
| (this is often the most difficult aspect of active | | | | need to consider your personality including your |
| investing). | | | | time management skills, decision making skills, |
| The advantages of active investing are that you | | | | tolerance for risk and your self discipline. |
| have greater control over your investment than | | | | There are of course many expert consultants to |
| you do with passive investing and the potential | | | | help you in each field and many sources of |
| for profit is theoretically higher. The disadvantages | | | | knowledge and experience to tap into. |
| are that you need to invest time in acquiring | | | | I hope that this article was useful in helping you |
| knowledge and skills and in managing your | | | | see where the various types of investments fit |
| investments and also that the potential for loss is | | | | into the scheme of things. |