We just finished another up year for the stock market – the third in a row. And it made me wonder if an active trading strategy (versus a passive one) can outperform market returns.
Before we answer that question, definitions. A passive trading strategy means investing (in stocks, options, mutual funds, bonds, etc.) … and sitting tight.
By contrast, active trading means you buy and sell on a regular basis, always looking for the right combination of returns that will beat the market.
Saying “the market” is rather broad, so let’s focus in on the S&P 500 index, which offers diversification across many sectors.
A passive trader could buy the S&P 500 via SPY, its electronic trading fund (ETF). Investing in SPY gives you plenty of opportunity to grow your wealth without the risk of investing in individual stocks. The names in the index are carefully selected by the owners of the fund (currently State Street Global Advisors). It was up 16.39% for 2025.
Meanwhile, the SPY ETF performed very well over the past three years with a 76% return. That is outstanding, and far better than historical returns, which average around 10% over the last 100 years. A 22-25% annualized return is a very tough bogey to beat for anyone, not to mention an active trader.
Our Swing Trader portfolio, by contrast, is an actively managed portfolio of option trades. It was up just under 51% in 2025, coming off a 40% gain in 2024. Hence, active trading has paid off for our subscribers as they have nearly doubled their money since the start of 2024.
So, why bother with an active trading strategy when passive trading offers such solid returns? If we were to follow the logic of mean reversion, then we can expect active trading to beat passive investing over the next few years. That does not mean the SPY would not be a good vehicle to invest in; it simply means active trading may offer superior returns.
Mind you, active trading is not for everyone. Both active and passive styles can build your wealth.
