There are no precise definitions. But in common parlance, yes, "passive" means tracking an index.
Passive investing has become popular and is often considered "good." So, of course, promoters want to stretch the definition to make their product or strategy fit within it, so they attract people who want "passive investments."
Whatever the definition might be, it's unlikely that anybody can adhere to them 100.0000%. So it's a matter of degree, and
how close you are is what matters. I haven't yet seen discussions of whether you can be passive without indexing that led anywhere useful.
One advantage of defining it as "index tracking" is that this is a fairly clean definition. Two people can probably agree on whether a fund is or is not doing that. Once you widen it, it's hard to draw any clear boundary.
To take an extreme example, consider an investor who follows a moving average market timing system, who goes entirely into stocks whenever the 50-day moving average crosses above the 200-day moving average, and entirely into cash on the reverse. Suppose he does this perfectly mechanically--even programs a bot to do the trading for him.
Can this be called "passive investing?" Who cares? Moving average market timing is not
like buying and holding a total market index fund has, and will not give you the same
results. So saying "it's 'passive'" just muddies the waters.
As far as John C. Bogle was concerned,
the original idea of the index fund [was to] own the entire U.S. stock market, own it at low cost, hang on to it forever.
Notice that even the phrase "index tracking" has a problem. The PAWZ ETF, which holds only stocks in pet-care related companies, tracks the FactSet Pet Care Index. Obviously it qualifies as an "index fund." Obviously it qualifies as "passive." Obviously it's not what Bogle meant. It may be as passive as passive can be, it is still not in line with the
the Bogleheads investment philosophy.
Things get tricky with e.g. Vanguard's target-date funds, because the contents of the portfolio consists of four or five index funds, but the proportions adjust with age. I wish I could say that the changes are related to the personal circumstances of the investor, and not to market behavior. Unfortunately, that isn't true, because Vanguard has made various changes in composition that appear to be based on active management: increasing the percentage of international stocks, increasing stock allocations across the board around 2006, adding international bonds.
Whether factor investing is "passive" is frequently debated around here. It's part of a larger debate which I'll capsulize as "Dimensional Fund Advisors (DFA) versus Vanguard."
Vanguard seems to have an institutional opinion on this.
Source
What are factor-based funds?
Factor-based funds are a form of actively managed funds. They purposely "tilt" portfolios toward certain stock characteristics like recent momentum, higher quality, or lower stock prices to achieve specific risk and return objectives.
In any case, there's a world of difference between a typical factor portfolio, even one that employs "dynamic allocation," and what my friend, in her seventies, is doing.
It seems unlikely we will do anything with crypto. We just spent about $35,000 on some very safe stuff, Procter and Gamble, JPMorgan Chase, a couple of others. Just a smidgen of activity. We have a Chase brokerage account, and with the mobile app, it's easy and kind of fun, and no fee, to buy and sell.
In the real world, riffing on Supreme Court Justice Potter Steward, I shall not today attempt further to define the kinds of material I understand to be embraced within the term "passive investing," and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and what my friend is doing is not that.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
