Are you a Growth or Value Investor? Do you love a risky crypto investment or cling to the financial stability of cash in the bank? This week we get into active vs passive investing, real estate vs stocks, mortgage math, capital gains tax hikes, why cash is trash, and how you can take advantage of front page PR scandals.

Index Investing vs Active Investing

Index Investing

* Allows you to invest in a broad swath of the market and essentially means that your returns will match the market since you’re getting the average return of all the companies in your index.* Fairly low risk and the easiest way to invest since it doesn’t require a lot of time or knowledge on your part.* Can be very low cost depending on the index and vendor you select, which is great because it means you keep compounding more of your money over time instead of it getting bled off by fees.

Active Investing

* Gives you the potential to beat the market and get a higher return on your investment but it requires a lot more time and energy to educate yourself on the companies that you’re looking at investing in.* Your costs might be substantially higher since you’re paying transaction fees every time you buy and sell in the market.* Value Investing and Growth Investing are both Active styles of investing.

Value Investing vs Growth Investing

Both of these types of investing strategies look at the current market price of a stock compared to the underlying value that we believe will eventually be reflected in the price.

In Value Investing, we’re looking for companies that, based on all the available information about the company, appears to be worth more than the current price actually reflects. So we buy the stock today at a discount and hold onto it until the price rises to match the actual underlying value.

* Typically seen as lower risk since we have a tangible comparison of company’s actual worth compared to its current price.* Tend to outperform Growth stocks if held for long time periods OR during periods of a bear market or recession.

For Growth Investing, the price today may match the actual underlying value of the company but we believe the future value of the company will be way higher based on the products/services/initiatives that company is working on. So we buy the stock today, wait for those new products and services to hit the market, which causes the price of the stock to grow dramatically, and we cash out our profits after that growth happens.

* Often higher risk since we’re betting on the company doing something amazing in the future without fucking it up along the way.* Potential to substantially outperform Value stocks if you’re looking at shorter timeframes (less than 5 years) and bull market periods.

ESG, SRI, and Impact Investing

ESG – Environmental, Social, Governance

SRI – Socially Responsible

ESG and SRI primarily focus on weeding out the bad players or the companies so they essentially select any companies that are neutral or better when assessed against the environmental and social criteria.

Impact Investing goes a huge step further by also weeding out those neutral companies and focusing exclusively on companies whose mission is to create positive impact environmentally, socially, etc. while also being profitable companies that can sustain themselves and continue their work for the longer term.

Active Index Investing

At the beginning, I know I said Active Investing versus Index Investing but ...