Hands-Off Investor

AAA

DEFINITION of 'Hands-Off Investor'

An investor who prefers to set an investment portfolio and make only minor changes for a long period of time. Many hands-off investors use index funds or target date funds which make only small and slow changes to their holdings, and therefore do not require much monitoring.

INVESTOPEDIA EXPLAINS 'Hands-Off Investor'

A hands-off investment strategy is well-suited to many retail investors who may not have the time needed to routinely monitor and research their investments. Hands-on, active management requires investors to continuously keep up-to-date on the positions that they hold. This often requires several hours of research per week. Active managers believe that by doing this work, they can earn higher-than-average returns on their investments.


A hands-off strategy is not necessarily underperforming. Many investors believe in an indexing approach, which posits that sticking with a well-diversified portfolio over the long term is the key to wealth. Since index funds often have very low expense ratios, hands-off investors often enjoy a built-in advantage over active traders who pay more in trading commissions, lose out to the bid-ask spread and incur the higher tax rates on short-term capital gains and nonqualified dividends.

RELATED TERMS
  1. Target-Date Fund

    A mutual fund in the hybrid category that automatically resets ...
  2. Hands-On Investor

    An investor who holds a large portion of a company's shares and ...
  3. Passive Management

    A style of management associated with mutual and exchange-traded ...
  4. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  5. Active Management

    The use of a human element, such as a single manager, co-managers ...
  6. Systematic Manager

    A manager who adjusts a portfolio’s long and short-term positions ...
RELATED FAQS
  1. How is portfolio variance reduced in Modern Portfolio Theory?

    According to modern portfolio theory, or MPT, portfolio variance can be reduced by diversifying a portfolio through the inclusion ... Read Full Answer >>
  2. What are the advantages of portfolio planning with the efficient frontier?

    The advantages of portfolio planning with the efficient frontier are based in Harry Markowitz's modern portfolio theory (MPT), ... Read Full Answer >>
  3. Which is better: dollar cost averaging or value averaging?

    Historical comparisons seem to indicate that value averaging (VA) tends to outperform dollar cost averaging (DCA), offering ... Read Full Answer >>
  4. What does the information ratio tell about the design of a mutual fund?

    The information ratio can tell an investor how well a mutual fund is designed to deliver excess or abnormal returns as well ... Read Full Answer >>
  5. What are the best free online resources to compare no-load mutual funds?

    Morningstar, Inc. is a well-known investment research firm that offers extensive market data and stock and mutual fund analysis. ... Read Full Answer >>
  6. How do I calculate my portfolio's investment returns and performance?

    The first step in calculating returns for your investment portfolio is identifying and gathering the requisite data. Once ... Read Full Answer >>
Related Articles
  1. Entrepreneurship

    7 Steps To A Successful Investment Journey

    Before you start investing, educate yourself on financial ideas and develop a strategy that agrees with your personality.
  2. Mutual Funds & ETFs

    The Hidden Differences Between Index Funds

    These funds don't all match index returns. Find out how to avoid costly surprises.
  3. Mutual Funds & ETFs

    Active Vs. Passive ETF Investing

    You can use these securities for more than just indexing. Explore the spectrum of possible ETF strategies.
  4. Active Trading

    The Benefits Of An Investment Club

    Don't want to be a passive investor? Discover how investment clubs allow you to take control of your portfolio.
  5. Retirement

    Why It Pays To Be A Lazy Investor

    Be a couch potato! This passive, but diversified, investing strategy could be for you.
  6. Fundamental Analysis

    Understanding Modern Portfolio Theory

    Modern portfolio theory describes ways of diversifying assets in a portfolio in order to maximize the expected return given the owner’s risk tolerance.
  7. Investing Basics

    Explaining Idiosyncratic Risk

    Idiosyncratic risk is the risk inherent in a particular investment due to the unique characteristics of that investment.
  8. Investing

    Prospering In The Next Bear Market: Here's How

    Prepare to survive, and even prosper, in the impending bear market, by considering and putting into action the following four strategies.
  9. Professionals

    When Couples Have Different Risk Appetites

    Communication, compromise and frequent monitoring will lead to successful investing for spouses with different risk tolerances.
  10. Entrepreneurship

    MLPs: Is Now the Right Time to Invest?

    Here's what you need to know about MLPs, those under-the-radar investment vehicles.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!