What it is
Passive investing is an investment strategy centered on mirroring the performance of a broad market index, such as the S&P 500, rather than attempting to outperform it through active stock picking or market timing. This approach typically involves investing in index funds or exchange-traded funds (ETFs) that hold the same securities in the same proportions as the underlying index. Passive strategies are often characterized by low fees and a long-term buy-and-hold mentality.
The growth of passive investing has significantly impacted market dynamics, contributing to the rise of index funds and ETFs. It means that when an index is rebalanced, or when new money flows into passive funds, it automatically buys or sells the underlying stocks, regardless of their individual fundamentals. This can amplify movements in large-cap stocks that dominate major indices. Retail investors often choose passive investing for its simplicity, lower costs, and historical long-term effectiveness.
Why it matters
Passive investing offers a simple, low-cost way to gain broad market exposure and achieve diversified, long-term growth without needing to pick individual stocks.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice