Hands-Off Investor


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.

BREAKING DOWN '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.

  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. Active Management

    The use of a human element, such as a single manager, co-managers ...
  5. Index Fund

    An index fund is a type of mutual fund with a portfolio constructed ...
  6. Equity Risk Premium

    The excess return that investing in the stock market provides ...
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