What distinguishes active investing from passive investing?

Active investing is characterized by frequent buying and selling of securities in an attempt to outperform a specific benchmark or market index. This strategy typically involves extensive research and analysis to identify opportunities where the investor believes they can achieve higher returns than the market. Active investors often rely on market timing and tactical asset allocation to capitalize on perceived inefficiencies in the market.

In contrast, passive investing seeks to replicate the performance of a market index, usually through a buy-and-hold strategy that involves minimal trading. Passive investors do not attempt to time the market or capitalize on short-term price movements but rather maintain a long-term investment approach.

The other choices depict different concepts. The notion that active investing involves a buy-and-hold strategy refers to a passive approach, while suggesting that passive investing entails frequent trading contradicts the fundamental principles of passive investment. Additionally, stating that passive investing focuses on stocks with high volatility is misleading, as passive investors typically diversify their portfolios across a broad range of assets, which may include less volatile investments.