What Is Passive Investing?
When people hear of the word passive investing, first thing that they thought of is real estate in most instances. Yet, anyone who owns an apartment or rental home knows that there’s no such thing. You have to collect rent, do repairs to the property, pay taxes and the list goes on. And for this to happen, it needs work. It is then common to think that it is really vital to be hands-on when it comes to retirement investment.
So what basically is the true meaning of passive investing?
Number 1. Owning markets – when talking about stock price, a passive investor isn’t bothered with the performance of a particular company over the other. If it is a well capitalized firm and is represented in broad index, the secret is to own it as well as all its peers.
Number 2. Own asset classes – there are lots of people who are fixating on stock market but a really powerful portfolio should have private and public bonds, foreign equities, foreign debt and real estate. While doing comparison of your gains, it is not the same thing as owning stocks even over in the long run.
Number 3. Rebalancing – buying low and selling high is what the trading dictum is. Being consistent in doing such is nearly impossible. The big wins are cancelled by losses most of the time, leaving small investors and 8 out of 10 big investors behind the market get average. The better thing to do is to sell gainers due to the reason that they rise and use money in order to buy back decliners. Over stock market alone, rebalancing helps a lot in gaining an additional 1.5 percent.
Number 4. Avoid emotions – risky is somewhat an interesting and funny word. This implies danger except for your investing circle to which it means rewards. The secret here is, taking the right risk similar to owning stocks as you avoid the wrong kind such as panicking and then selling out when the market loses ground.
Number 5. Compounding – do you want to sell investments at the right time? Well not, if you steadily rebalance and shift your portfolio gradually to a more conservative holding as you’re aging. Going to cash in the markets isn’t actually a good timing rather, it is an inclination of panic and a sign that you should not be investing at all.
Believe it or not, being a successful passive investor can be achieved. In fact, so long as a passive investor has a reasonable goals and right mindset, he or she can’t help it but to succeed. Retiring on the right moment is additionally a reasonable goal and it is something you can achieve.
Citation: my response