Passive management

Passive management (also called passive investing) is an investing strategy that tracks a market-weighted index or portfolio. The idea is to minimize investing fees and to avoid the adverse consequences of failing to correctly anticipate the future. The most popular method is to mimic the performance of an externally specified index. Investors typically do this by buying one or more index funds. By tracking an index, an investment portfolio typically gets good diversification, low turnover (good for keeping down internal transaction costs), and low management fees. With low fees, an investor in such a fund would have higher returns than a similar fund with similar investments but higher management fees and/or turnover/transaction costs.

Passive management is most common on the stock market, where index funds track a stock market index, but it is becoming more common in other investment types, including bonds.