Passive investing is an approach to investing in the stock market that emphasizes a buy and hold strategy rather than buying and selling regularly in response to market movements. In this investment philosophy, investors typically purchase and hold a diversified portfolio of assets that are usually based on a market-weighted index (such as the Standard and Poor’s 500 or the Dow Jones Industrial Average, for example).
One of the most common passive approaches to investment is to purchase index funds that are tied to the overall performance of a market. These funds are often referred to as ‘passive funds’ or ‘passively managed funds’. The underlying stocks of these funds can be stocks, bonds or other financial instruments that track a particular market. These types of funds typically specialize in particular areas such as equities, fixed income, commodities, foreign exchange or real estate, among others.