There is no one shoe fits all strategy when it comes to investing. Over the years, investors have come up with ways to get the most of their investments without gaming the system. One of the most important factors when investing is aligning financial goals. It is recommended to have a plan that suits your needs and aspirations.
Long-term investing could vary based on an investor, differing from the number of years an investor is willing to hold a stock before selling. Passive investing is an investment strategy that involves buying securities that mirror stock market indexes and holding them for an extended period. Passive investing tends to be cheaper and less complex. Generally, passive investors are less concerned about the effects of frequent changes in the market since they are not seeking to profit from the market’s short-term fluctuations. Although, there is an assumption that passive investment posts positive returns over time.
For more context, active investing involves researching individual stocks in an attempt to beat the market conditions to maximize profits. Passive investors buy an index of stocks and mirror the stock market. Although passively managed index funds often face performance limitations. They are designed to provide returns that closely track their benchmark index rather than seek outperformance.
Index funds and ETFs are the most well-known types of passive investments. Both investments let you invest in securities from different sectors to diversify.
Passfolio Adviser’s Smart Portfolio helps you identify opportunities in index investments. This powerful tool recommends indexes according to your risk and tolerance level. Our algorithm will periodically rebalance your portfolio with a diversified global mix of ETFs. The Smart Portfolio has a fixed 0.75% annual fee.
Benefits of Passive investing
It’s simple: Instead of constantly researching what stocks to buy. Passive investing is relatively straightforward, especially for beginner investors with little or no investment knowledge.
Lower fees: Passive investing requires fewer fees compared to active investing. The latter involves buying and selling stocks that attract steady commissions. However, note that there may be other costs associated with the underlying investments of the portfolio.
Drawbacks of Passive investing
Limited investment options: Investing in an index or exchange-traded fund, you won’t be able to handpick your favorites based on research, limiting your options.
May not get above-market returns: You may not achieve above-market returns because your goal is to match the market average.
Investing should not be a day’s work. It requires constant researching and monitoring. However, if you seem overwhelmed by the continuous market changes, you can sign up for Passfolio’s Robo advisor – Smart Portfolio.
Smart Portfolio is a type of managed account offered by Passfolio Advisers LLC that is designed for clients who seek a digital, discretionary investment management experience. For a more in depth view of Passfolio Advisers LLC’s services, including fees, please view our Wrap Fee Brochure, Advisory Agreement, and Relationship Summary.