Active investors try to beat the market through stock selection or market timing. Passive investors buy the market via index funds and ETFs and hold. The two approaches diverge sharply on cost, evidence, and what they ask of you.
| Active Investing | Passive Investing | |
|---|---|---|
| Goal | Outperform the market index | Match the market index |
| Annual cost (typical) | 1% – 2% (fund) or 0.1% – 0.5% (DIY trading) | 0.03% – 0.30% (ETF expense ratio) |
| Cost in Singapore | Active unit trusts often charge a TER of ~1.5% – 2.0% | Index ETFs typically ~0.20% – 0.50% (some global trackers under 0.10%) |
| Time required | Significant — research, monitoring, trading | Minimal — set DCA and forget |
| Skill required | High — must beat the median manager | Low — discipline matters more than skill |
| 10-year track record (SPIVA) | ~70% – 90% underperform benchmark, depending on category | Match benchmark minus tiny fees |
| Do winners repeat? (SPIVA Persistence) | Rarely — top-quartile funds seldom stay top-quartile; odds worse than a coin flip | Not applicable — you always get the index return |
| Tax efficiency | Lower — frequent turnover | Higher — minimal trading |
| Behavioural risk | High — chase recent winners, panic sell | Low — automation removes most decision points |
For the core of your portfolio (80% – 100%), go passive via broad-market ETFs. If you enjoy the analytical work, allocate a 'fun money' bucket (5% – 10%) to active picks — but accept that this will probably underperform your passive core over a decade. Be honest about which bucket is which.
S&P Indices Versus Active. A semi-annual report from S&P Global that tracks how active funds perform against their benchmark indices over various time horizons. SPIVA's consistent finding: 70% – 90% of actively managed equity funds underperform their benchmark over 10+ year periods, especially after fees.
Yes. SPIVA publishes regional reports including for Asia and emerging markets. Singapore-listed active equity funds show the same pattern — most underperform the STI or relevant benchmark over long periods after fees.
Yes — and many investors do this deliberately. Maintain a passive core (broad-market ETFs) for the bulk of your portfolio, then allocate a small 'satellite' bucket to individual stocks, themes, or active funds you have conviction in. Track both buckets separately so you can honestly assess whether your active picks earn their keep.
In any given year some funds will beat their benchmark — that is just maths and luck. The harder question is whether the same fund keeps doing it, and the evidence says it usually does not. S&P's Persistence Scorecard repeatedly finds that top-quartile funds rarely remain top-quartile over the following years; the odds of staying on top are often worse than a coin flip. Picking last year's winner is not a reliable strategy.
Not the core argument. Active strategies have flooded into the ETF wrapper recently, and that wrapper is often cheaper and more tax-efficient than the old unit-trust format. But cheaper active is still active: it carries higher fees than a plain index ETF and still has to overcome the same after-fee hurdle. A lower-cost active ETF is an improvement on a 2% unit trust, not a substitute for low-cost indexing.
The common routes are a low-cost broad-market ETF bought through a brokerage (for example a global or S&P 500 tracker), a regular savings plan that dollar-cost-averages a fixed amount each month, or a robo-advisor that builds and rebalances an ETF portfolio for you. Watch the all-in cost: the ETF expense ratio plus any platform or transaction fees. Set up an automatic monthly contribution and avoid trading on headlines.