How does passive investing typically operate?

Passive investing operates primarily through a buy-and-hold strategy of investments. This approach is designed to minimize buying and selling activities, thereby reducing transaction costs and taking advantage of long-term market trends. Instead of attempting to time the market or make frequent adjustments based on short-term fluctuations, passive investors typically purchase a diversified portfolio that mirrors a market index, such as the S&P 500. Over time, this strategy seeks to benefit from the overall market growth rather than attempting to outperform it through active management.

This method is grounded in the belief that, over the long term, financial markets tend to rise, and by holding investments through various market cycles, the investor can achieve satisfactory returns without the need for constant monitoring or trading. Consequently, passive investing is often associated with lower management fees, making it an appealing option for many investors looking for a more hands-off approach to portfolio management.