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