Question

Discuss the approaches currently used by retail investors to passively invest in equities markets, and consider how this may have changed over the past twenty years

Answer 1

The equity market broadly refers to investment in shares of public limited corporations. The passive equity investing is trying to maximize the portfolio returns with minimum buying and selling of shares.

Th retail investors can passively invest in equities market by buying shares in proportion to any major indices like S&P 500, Dow Jones etc. Alternatively the investor can buy the mutual funds which is known as Index Funds that tracks such indices. Nowadays lots of Exchange Traded Funds(ETFs) are also available in the market that tracks various indices.

The main advantage of the passive investing is that they are low cost because of the minimum buying and selling of shares. This also results into tax efficiency for the investors. Also, the cost to manage the index funds are less as they are only tracking  the index and these benefits are passed to the retail investor of index funds.

Over the past twenty years globally the shift has been more and more towards passive investing due to above mentioned benefits and superior returns compared to active investing in many cases. In United Sates itself the passive investing the index mutual funds and ETFs have suprassed the active funds. So the retail investors are moving more towards low cost passive investing.