<p>Active investing is a strategy where individuals or fund managers select specific securities, such as stocks, bonds, or real estate, with the aim of outperforming market benchmarks. Unlike <a href="/NewSite/encyclopedia/passive-investing/" class="ency-link">passive investing</a>, active investing involves frequent trading and constant monitoring of the market to capitalize on short-term opportunities.</p>

<h2>How It Works</h2>
<p>Active investing involves several steps:</p>
<ul>
  <li><strong>Research:</strong> Investors analyze companies, industries, and economic trends to identify undervalued or overvalued assets.</li>
  <li><strong>Selection:</strong> Based on research, investors choose securities they believe will perform better than others in the market.</li>
  <li><strong>Trading:</strong> Investors buy and sell securities frequently to take advantage of price movements and capitalize on short-term opportunities.</li>
  <li><strong>Monitoring:</strong> Investors continuously track their portfolio's performance and market conditions to make timely adjustments.</li>
</ul>

<h2>Why It Matters</h2>
<p>Active investing matters for several reasons:</p>
<ul>
  <li>Potential for higher returns: By selecting individual securities, active investors aim to beat market averages and generate higher returns.</li>
  <li>Flexibility: Active investing allows investors to adjust their portfolios quickly in response to changing market conditions.</li>
  <li>Diversification: By choosing specific securities, active investors can create diversified portfolios tailored to their risk tolerance and investment goals.</li>
</ul>
<p>For example, a fund manager employing active investing strategies might allocate a larger portion of their portfolio to technology stocks if they believe that sector will outperform others in the near term. This targeted approach allows the fund to potentially generate higher returns than a passively managed fund that simply tracks a market index.</p>