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