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. But there’s no such thing, which is something that any apartment or rental home will attest. 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 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’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. 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. Rather, sell gainers because they’re rising and using money to buy back decliners. Rebalancing helps a lot in gaining extra 1.5 percent over stock market alone.
Number 4. Avoid emotions – risky is quite 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 want to sell investments at the right time? Not if you rebalance and shift your portfolio steadily and gradually to a more conservative holding as you’re aging. 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. Truth is, disciplined passive investor’s only route is to succeed so long as he or she has reasonable goals and right mindset. Additionally, retiring on the right moment is reasonable goal and it is something you can achieve.