The Three Types of Investing

In the world of investing there are many differentalso generally far greater than in passive investing.
investment vehicles and strategies but they canCommon examples of active investments are
be split into three broad categories. Theshare, options, futures, and currency trading, buy
advantage of thinking from this point of view isand hold share portfolio building, buy and hold
that it makes it easier to decide which form ofresidential or commercial property, and property
investing or which combination of investing willtrading.
best suit you.Creative Investing
Let's have a look at the three broad categoriesWith creative investing you actually change the
of investing and look at the advantages andinvestment in some way that is designed to
disadvantages of each.manufacture profit. This form of investment
Passive Investingrequires a lot of skill and experience but if you
Passive investing is when you put the investmenthave 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 thatyour imagination to it. For this reason creative
you are not required to have any investmentinvesting is often described as turning thought into
expertise and you don't have to invest your time,money.
only your money. The disadvantages are thatFor example if you are a property developer
firstly you have relinquished your control overthere is a huge variety of possible developments
your money and secondly the returns for thesethat 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 arepossibilities there are also a huge range of
savings accounts, government bonds, propertypotential outcomes ranging from high profit to
trusts and mutual funds. Most people invest forhuge loss and including all the points in between.
their retirement under some form of passiveThe advantages of creative investing are that it
investment that usually has special taxhas the highest profit potential and the highest
concessions which vary from country to country.degree of control and flexibility. The disadvantages
Active Investingare that it requires the highest degree of
With active investing you take an active role inknowledge, usually involves borrowing large sums
managing the investment. This form of investingof money and also has a huge potential for large
could have a long term focus such as a buy andlosses if you get it wrong.
hold share portfolio or it could be a short termCommon examples of creative investments are
focus such as futures trading.property development, property renovation,
To do well in active investing you need to havebusiness renovation and new product
considerable knowledge of the investment vehicledevelopment and marketing.
or vehicles that you are using. You also need toWhen you are deciding which of these three
understand the basic principles such as when tobroad categories best suits you need to consider
collect profits, when to cut losses and how toyour knowledge and experience, your strengths
analyze the market. You also need the emotionaland weaknesses, your access to resources,
strength to apply these strategies as requiredincluding time and money, and in particular you
(this is often the most difficult aspect of activeneed to consider your personality including your
investing).time management skills, decision making skills,
The advantages of active investing are that youtolerance for risk and your self discipline.
have greater control over your investment thanThere are of course many expert consultants to
you do with passive investing and the potentialhelp you in each field and many sources of
for profit is theoretically higher. The disadvantagesknowledge and experience to tap into.
are that you need to invest time in acquiringI hope that this article was useful in helping you
knowledge and skills and in managing yoursee where the various types of investments fit
investments and also that the potential for loss isinto the scheme of things.