{"id":3453,"date":"2021-05-03T13:37:31","date_gmt":"2021-05-03T13:37:31","guid":{"rendered":"https:\/\/www.publicfinanceinternational.org\/?p=3453"},"modified":"2021-05-18T20:15:29","modified_gmt":"2021-05-18T20:15:29","slug":"what-is-passive-investing","status":"publish","type":"post","link":"https:\/\/www.publicfinanceinternational.org\/what-is-passive-investing\/","title":{"rendered":"What is Passive Investing? What You Need To Know"},"content":{"rendered":"\n

Also known as passive management<\/a>, passive investing involves strategies that don\u2019t try to outperform the stock market, and the belief is that to boost your returns you do as little buying and selling as possible. <\/p>\n\n\n\n

Don\u2019t get us wrong though, it\u2019s still a thoughtful process that aims to mirror the market. <\/p>\n\n\n\n

It\u2019s a go-to approach for many investors, but you need to know what you are doing<\/a>. In this article, we tell you all about passive investing and give you a breakdown of the pros and cons of joining this trend.\u00a0<\/p>\n\n\n\n

What is Passive Investing?<\/strong><\/h2>\n\n\n\n

Passive investing is a popular investment strategy. The aim of passive investing is to maximize profits while minimizing buying and selling. This long-term strategy is used by both beginner and experienced investors alike. <\/p>\n\n\n\n

Passive investors hold shares in stocks or other assets for long periods. This slowly builds up your wealth over time. Passive investors try to match the market, and not to beat it. This is different from active investing, which is a more risky and vigorous strategy.<\/p>\n\n\n\n

Understanding Passive Investing<\/strong><\/h2>\n\n\n\n

As a passive investor, your goal is to match the performance of certain market sectors, not to outperform them. Passive investors aim to diversify stocks in a given market index. <\/p>\n\n\n\n

The secret to passive investing is boosting returns by doing as little buying and selling as possible. This strategy is simple to understand and easy to manage. It has become a popular go-to approach for many investors.<\/p>\n\n\n\n

The ultimate goal is to build up wealth slowly, as opposed to making quick profits. Investors rely on the fact that the stock market always tends to go up over the long haul. If your portfolio matches the market, it will appreciate along with it. <\/p>\n\n\n\n

Passive trading strategies tend to outperform active trading<\/a> strategies in the long run. This is why many passive traders invest in passive investment vehicles. These vehicles include exchange-traded funds (ETFs) and other index funds.<\/p>\n\n\n\n

There are several key characteristics of a passive strategy.<\/p>\n\n\n\n

Choose a position and become familiar with it<\/strong><\/h3>\n\n\n\n

It is important to thoroughly research the sectors of the market you want to invest in. When you become more familiar with the stock, you will have a better understanding of price movements. You need to know if price movements are due to normal volatility or something more significant.<\/p>\n\n\n\n

Watch the chart movement and the news flow<\/strong><\/h3>\n\n\n\n

You need to keep an eye on price movement when it comes to news flow. Some trades might have future catalysts that you need to look out for to make a move in your portfolio. This might be movement over important technical levels or the anticipation of positive returns. You should track charts and news flow closely.  These might indicate volatility in the market that you use to make extra buys or sells.<\/p>\n\n\n\n

Know when to change portfolio positions as market conditions develop<\/strong><\/h3>\n\n\n\n

As market conditions develop, you need to know when to ramp up a position or cut it back. The main goal is to have a diverse portfolio that matches your chosen sector in the market. <\/p>\n\n\n\n

Types of Passive Investments<\/strong><\/h2>\n\n\n\n

There are several types of passive investment strategies. The most common passive investments include index funds, ETFs, and mutual funds.<\/p>\n\n\n\n

Index funds<\/strong> are the most common passive investing approach. Assets held in the fund usually represent a certain benchmark on the market. Index funds make it easy to track specific individual investments within the fund over a long period.<\/p>\n\n\n\n

Exchange-traded funds (ETFs)<\/strong> allow you to track a selection of shares within a market sector. You can trade ETFs<\/a> on an exchange. These offer a more cost-effective route to investing compared to other investment funds.<\/p>\n\n\n\n

Mutual funds<\/strong> are collections of money from many investors used to invest in various securities. These investments are managed through a brokerage firm or directly. Mutual funds come with added costs and trading penalties.<\/p>\n\n\n\n

Pros and Cons of Passive Investing<\/strong><\/h2>\n\n\n\n

There are many benefits to passive investment strategies. Here are some of the most notable advantages.<\/p>\n\n\n\n