• There are two basic approaches to managing a stock portfolio.business charts with sell image by Andrew Brown from Fotolia.com
  
  

Constant Portfolio Balancing

• An actively managed investment portfolio is one where the fund manager constantly evaluates its performance. Various factors such as pertinent news, government announcements, earnings reports and technical analysis are under constant review. The financial instruments in the portfolio are bought and sold whenever necessary in an attempt to boost performance.
  
  

Buy and Hold Portfolio

• A passively managed portfolio is where the fund manager employs a buy and hold strategy. This investing philosophy is based on the belief that high quality companies will eventually manifest as profits in the markets when given time. The portfolio is typically rebalanced at a predetermined frequency such as quarterly or annually.
  
  

Bottom Line

• While both management methods have their merits, the buy and hold passive approach has more benefits. It is less risky than the active approach where the investment manager must pick correctly more often. Buy and hold managers tend to charge less for their services based on less required involvement. Finally, short term profits from active investing are subject to higher capital gains taxation.