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 have to collect rent, do repairs to the property, pay taxes and the list goes on. And all this requires 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. Say that it’s a well capitalized company and represented in broad index at the same time, the secret is to own it and all its peers.
Number 2. Own asset classes – there are many people who fixate on stock market but, a powerful portfolio contains 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 – it’s set by the trading dictum to sell high and buy low. It is nearly impossible to do so 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. 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. Rebalancing can help a lot in gaining extra 1.5 percent over stock market alone.
Number 4. Avoid emotions – it is somewhat interesting word to use risky here. This is equivalent to danger except for the fact that, your investing circle finds it rewarding. 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? Well not, if you steadily rebalance and shift your portfolio 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. As a matter of fact, disciplined passive investor can’t help but to be a success, given with reasonable goals and right mindset. Retiring on the right moment is additionally a reasonable goal and it is something you can achieve.