Share investors are diverse. They invest for a variety of different reason, have different investing horizons and insight into the market. All these different factors will influence an investors investment strategy. Two investment strategies are passive and active investing.

Passive investing is also known as buy-and-hold. The underlying assumption of passive investment is that the market posts positive returns over time, therefore, there is no need to profit off short-term price fluctuations or market timing. Instead, with a long-term horizon you can buy and hold a diversified portfolio and, with minimum trading, you will achieve a decent return.

Some of the advantages of passive investing are:

·        Simplicity. Simply owning a group of shares is easier than having to constantly research and adjust your portfolio.

·        Low fees. This is as a result of less trading and specialised research.

·        Higher return. Passive investments tend to outperform active investments, on average, over the long term (data from the S&P Indices Versus Active report from S&P Dow Jones Indices).

Passive investing also has a few disadvantages. These include:

·        May have no exit strategy. Historically, when the share market recovers from downturn, it may take a while. Because passive investing is a long-term strategy it may not have an exit strategy during market downturns, and it has little to no variance.

·        Smaller potential returns. While the data suggests that passive investing tends to have higher returns on average over the long term, it tracks the market. Therefore, it also prevents the potential for outstanding returns.

Active investing is where an investor actively watches, monitors and realigns their portfolio. This results in the continuous buying and selling of shares. An active investment strategy has a number of advantages, including:

·        Flexibility. Since there is the constant buying and selling of shares, investors can easily react to different market conditions and allocate shares accordingly.

·        Short term opportunities. Active investors can make use of opportunities in the market as and when they arise.

·        Broader range of options. Active investments can use expanded trading options.

However, active investing also has a few disadvantages. These include:

·        Costs. Since you are constantly buying and selling the transaction costs are higher.

·        Steep learning curve. As opposed to passive investments, active investments require specialised research and analysis.

As a Muslim, an additional consideration would be zakah. Depending on your strategy, the amount of zakah you will pay on an investment may be different. If your shares are zakatable, and you are a trader then you’ll pay 2.5 % on the value of the shares. However, if you are a long-term passive investor and are not merely trading short term, then you will only pay 2.5 % zakah on the zakatable assets the company owns in proportion to your share in the company.

Allah knows best.