Active Versus Passive: Market Pros Weigh In on the Best Strategy for Retail Investors

Elon Musk thinks passive investing has “gone too far.” Cathie Wood called it a “massive misallocation of capital.”

The long-running active versus passive debate has become even more heated than usual during the recent stock market turmoil.

It’s a dispute with trillions of dollars at stake. The advent of passive exchange-traded funds provided an easy, cheap way for investors to get exposure to an index like the S&P 500, leading passive to overtake active in the US domestic equity-fund market for the first time in 2018. Today, its share of the $13.8 trillion market is approaching 58%, according to Bloomberg Intelligence.

Index investing tends to outperform actively managed funds over the long-term. However, that can change when stocks are volatile, giving active managers a chance to shine.