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. It is because part of this investment includes collecting rent, doing repairs, paying taxes and so forth. All of this is equivalent to 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 – a passive investor is not concerned with the performance of a particular company over the other with regards to 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 – 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. 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 can help 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. The key is taking the right type of risk such as owning stocks as you are avoiding the wrong kind 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.
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.