What Is Passive Investing?
In most instances, when people hear of the word passive investing, the first thing that comes into their minds is real estate. Yet, anyone who owns an apartment or rental home knows that there’s no such thing. You need to collect rent, do repairs to the property, pay taxes and the list goes on. And for this to happen, it needs work. So with regards to retirement investment, it just become common to think that it is essential to be hands-on with it.
So what does it truly mean when we say passive investing?
Number 1. Owning markets – passive investors aren’t concerned that much with the performance of a particular company over the other when talking about stock price. 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 – a really powerful portfolio has to contain private and public bonds, foreign equities, foreign debt and real estate but it is contrary to what others do as they fixate themselves on stock market. 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. Yet, that is almost impossible to do consistently. Most of the time, the big wins are cancelled by losses, which leaves the small investors and 8 out of 10 big investors behind the market get average. Rather, sell gainers because they’re rising and using money 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 is equivalent to danger except for the fact that, your investing circle finds it rewarding. 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 – would you like to sell your investments at the right moment? Actually not if you would steadily rebalance and shift your portfolio gradually into a holding that’s more conservative as you age. Going to cash in markets is not actually a right timing rather, it’s a sign of panic and a sign that you should not be investing at all.
Anyone can become a successful passive investor. 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. Furthermore, retiring on the right time is both a reasonable goal and it is something you can achieve.