What distinguishes active investment management from passive investment management?

• A. Active management avoids all benchmark comparisons
• B. Passive management requires frequent trading
• C. Active management involves ongoing buying and selling decisions
• D. Passive management requires a financial advisor

Answer: (C)

Active investment management is characterized by the continuous assessment and adjustment of the investment portfolio based on market conditions, economic trends, and other relevant factors. This approach involves making ongoing buying and selling decisions with the goal of outperforming a benchmark index or achieving specific investment objectives. Active managers use their research, analysis, and judgment to identify opportunities and risks, positioning the portfolio accordingly to capitalize on potential short-term gains.

In contrast, passive investment management aims to mirror the performance of a specific benchmark index, typically through the use of index funds or exchange-traded funds (ETFs). Passive management does not involve the regular buying and selling decisions that are common in active management. Instead, it focuses on maintaining a long-term investment strategy with minimal trading activity, aiming for market returns rather than trying to exceed them.

The other options highlight misconceptions about the differences between active and passive management. Some suggest that active management avoids benchmark comparisons, which is inaccurate because active managers often benchmark their performance. The assertion that passive management requires frequent trading contradicts the fundamental principle of passive investing, which is to minimize trading to reduce costs and maintain alignment with the index. Lastly, while a financial advisor can assist clients with passive investment strategies, it is not a requirement; investors can choose to invest pass