Active Investing vs. Passive Investing - Understanding
the key differences

15 October 2025 | 5 min read

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Key Takeaways at a Glance

  • Active strategies seek alpha through targeted selection and timing.
  • Passive strategies focus on matching benchmark returns with low cost.
  • Active strategies may offer higher upside but come with higher fees and risks.
  • Passive investing provides diversification and cost efficiency but may underperform in volatile markets.
  • Understanding both styles helps build a more informed and strategic investment plan.
  • Citi enables diversified access across both strategies for wealth clients.

Introduction

For investors navigating complex financial landscapes, knowing when to use passive or active investing is essential. This article sets the foundation for understanding these two core approaches, setting the stage for deeper exploration in future articles across portfolio design, fund selection, and hybrid approaches.

What is Active Investing and How Does It Work?

Active investing involves making tactical investment decisions — buying and selling securities based on research, forecasts, and market trends. Portfolio managers or individuals aim to beat market benchmarks like the S&P 500 or STI through expert judgment.

Example: A fund manager investing heavily in Southeast Asia’s renewable sector after anticipating regulatory tailwinds.

Pros Cons
Potential to outperform the market. Higher fees due to active management.
Flexibility to respond to news, events, or earnings. Performance is manager-dependent and can be inconsistent.

What is Passive Investing and When Is It Useful?

Passive investing involves buying a diversified basket of securities that mirrors a market index. There’s no active decision-making — the strategy is designed to follow the market, not beat it.

Example: Investing in an ETF that tracks the MSCI World Index or the Straits Times Index (STI).

Pros Cons
Lower fees and transaction costs. No downside protection in bear markets.
Transparent and diversified exposure. Returns will never outperform the index.

Why is Passive Investing Gaining Ground Among Global Investors?

For high-net-worth individuals, passive strategies can offer:

Efficient Market Exposure Access to entire regions or sectors via a single product.
Simplicity and Transparency Clear rules-based holdings.
Cost Control Lower expense ratios mean more retained returns.
Portfolio Building Blocks Useful for core allocations, leaving room for tactical active layers.

However, investors must still monitor index composition, fees, and performance drag.

How Do Active and Passive Investing Compare?

Feature Active Investing Passive Investing
Strategy Basis Manager judgement and analysis Index replication
Return Expectation Aim to exceed market Match market returns
Cost Structure Higher (performance and management fees) Lower (flat expense ratios)
Decision Control Fund manager driven Rules-based, automated
Ideal Use Case Tactical bets, complex markets Core holdings, long-term exposure
Investor Fit Opportunistic, hands-on investors Long-term, cost-sensitive investors
 The Citi Advantage

With Citi Singapore, investors can:

  • Access both active mutual funds and passive ETFs globally.
  • Receive curated recommendations tailored to their goals.
  • Consult with our Client Advisors to structure blended portfolios.
  • Use Citi’s digital platforms to view, track, and rebalance holdings.

Whether you prefer alpha-seeking funds or low-cost index exposure, Citi offers the guidance and digital tools to help build and balance your equity strategy.

How Should You Balance Active and Passive Approaches?

The right mix depends on your financial goals, risk appetite, and market outlook. A hybrid strategy may give you both control and consistency — if it’s structured well.

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Explore Investing Strategies

We can help you evaluate both approaches and build the mix that fits you best.

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Do you want to discover the optimal mix between active and passive approaches for your portfolio?

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