Active vs Passive Investing with liwwa

Active and passive investing in a conventional sense

The terms “active” and “passive” are buzz words that are used frequently when it comes to investing - and refer to the general strategies that individuals use to invest.

Traditionally, “active” investing is a strategy by which investors attempt to earn returns that are greater than the market average. This requires a hands-on approach and the active investor will pick individual securities such as stocks, bonds, or options, in an attempt to outperform the market by deciding the best possible time to buy or sell.

On the other hand, “passive” investors prefer buying-and-holding their investments over a longer period, and focus on benefitting from the overall increase in market prices over time. Typically, passive investors allocate the majority of funds in pooled-investment securities that follow one of the major indices such as the S&P 500 or Dow Jones Industrial Average (DJIA), which tend to best represent the larger market. Since these investors resist frequent buying and selling within their portfolios, this is a cost and time-effective investment method and the strategy also reduces the mistakes investors can make when they react emotionally to movements within the stock market.

Active investing with liwwa

In the context of liwwa - we consider our active investors to be those who choose between individual loans to invest in, to meet their specific needs and preferences. For instance, if you would like to support a certain industry or invest in a particular type of loan, this is possible by browsing the new loans that become available on the platform twice a month and investing in those that meet your specifications. Investors can study the following characteristics to build their perfect portfolio:

Characteristics of the business:

• Number of previous liwwa loans
• Industry & Sector
• Business Description
• Years in Operation
• Number of employees

Characteristics of the loan:

• Credit score
• Loan amount
• Loan tenor
• Loan type and purpose
• Sharia vs. Conventional loan
• Expected Return (IRR)

Actively investing with liwwa is a great option for investors that enjoy a “hands-on” approach, giving them the flexibility to build a highly tailored portfolio of loans. However, one risk of taking this approach is that active investors often have more exposure to individual loans and lower diversification. Therefore, we recommend investors to diversify their portfolio over a large number of loans to enhance diversification and minimize risk. Active investors are also advised to frequently log in to their account to reinvest the returns generated on their loans, which can be a hassle over the long-term, as new loans are added and repayments come in continuously throughout the month.

Passive investing with liwwa

Passive investing on the liwwa platform can be accomplished by using our Auto-Invest tool which creates and maintains a diversified loan portfolio on your behalf. This can be thought of as investing in the full “liwwa Index”, rather than taking chances on a few individual loans.

liwwa’s Auto-invest tool provides investors with the opportunity to invest evenly across liwwa’s entire loan portfolio, taking the guess-work out of investing. Alternatively, for investors that want to passively invest, but with a bit more specification, they can automate their investment strategy by specifying their risk tolerance, investment horizon, and level of diversification.

Currently, over half of liwwa's investors are taking advantage of Auto-Invest to increase diversification, reduce volatility, and earn higher returns. Auto-Invest reinvests new funds and repayments every night while you sleep, making it an effortless way to maintain your portfolio continuously. After setting up the tool with the click of a button, investors can sit back and relax, logging in infrequently to monitor their portfolio performance and receiving updates in monthly email statements. To read more about the advantages of Auto-invest, check out our blog post here.

Takeaways

liwwa gives investors the opportunity to add the SME debt asset class to their investment portfolio, regardless if they prefer active or passive investing strategies. While some investors are excited to choose between our new loans twice a month, others would prefer to have their money working for them in the background. At liwwa, we are supporting investors to earn high returns and diversify their portfolios to secure their future.