Active or passive?

When you invest, you generally invest using funds. A fund is a collection of equities, or bonds, and we use them to spread the risk of diversification, rather than buying direct.

There are two ways your funds can be managed: actively or passively.

Active management involves a higher fee and will see the fund manager try to beat the overall market performance by buying and selling regularly. Almost all active fund managers fail to outperform the index they’re measuring against over a prolonged period of time when you take everything into

consideration, such as their fees.

Passive management is where your investments are managed by a computer or a team, rather than an individual, and spread over a wide range of the index.

A well-known example – although not a good investment choice – is the FTSE 100 index tracker fund.

By buying this fund, you would own shares in all 100 companies in the

FTSE 100. Typically, you own them in size order with more of your money invested in the larger companies rather than the smaller ones.

But what’s important about index funds is that they are not all the same.

Some track only the UK, some track international markets, some track emerging markets – so be sure to do your research before you in vest.