What Is Passive Investing?
First thing that comes to people’s mind when they hear of the word passive investing is real estate most of the time. 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. It’s then common to think that it’s really vital to become hands-on with regards to retirement investment.
So what does it truly mean when we say passive investing?
Number 1. Owning markets – a passive investor is not concerned with the performance of a particular company over the other with regards to stock price. If it’s a well capitalized firm and represented in broad index, then the secret is owning it and all of 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. It isn’t the same thing as owning stocks even over in the long run while doing comparison of your gains.
Number 3. Rebalancing – selling high and buying low as trading dictum goes. 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. Rebalancing can help a lot in gaining extra 1.5 percent over stock market alone.
Number 4. Avoid emotions – risky is somewhat an interesting and funny word. This implies danger except in your investing circle where it implies rewards. Taking the right type of risk like owning stocks as you’re avoiding the wrong type similar to panicking and then selling out when the market loses ground.
Number 5. Compounding – do you have to sell your investments at the right time? Actually not if you would steadily rebalance and shift your portfolio gradually into a holding that’s more conservative as you age. Cashing in markets is not a good timing instead, it is more like a sign 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. As a matter of fact, disciplined passive investor can’t help but to be a success, given with reasonable goals and right mindset. Furthermore, retiring on the right time is both a reasonable goal and it is something you can achieve.
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