Active vs. Passive Investment Strategies. Is either one superior?

Seminar paper from the year 2020 in the subject Business economics - Investment and Finance, grade: 1,0, Berlin School of Economics and Law, language: English, abstract: There are two different approaches underlying investment management: active and passive investment strategies. This paper analyzes these two different schools of thought when facing portfolio management and whether either one is superior. It starts with a short insight into the Efficient Market Theory because it the basis of the argumentation between the active versus passive strategies. After understanding the groundwork, the work continues to look deeper into the two different approaches, starting with the active on. In order to be able to compare and evaluate the two approaches, it is necessary to understand, what they consist of and how they work, which strategies each approach uses to accomplish their objectives and what kind of advantages or disadvantages can occur. Over the past half-decade, capital markets have gained a growing importance for economy and society. More and more business enterprises decide to enter the capital market to finance themselves rather than borrowing money from credit institutions. Simultaneously, more and more investment opportunities for institutions and private persons arise. In general, investments are made to create return in order to increase wealth. Over the past decades, the number of investments has increased sharply, and the trend is still going strong. This trend causes constantly growing, moving and changing financial markets all over the world. As a result, investors have to overcome many (new) challenges and have to put a lot of factors into consideration in order to be able to make the best investment choices with the brightest promising future.