Would you call yourself a passive investor? Passive investing is works pretty well for new investors simply because it gives broad diversification with very low costs. This form of investing is an investment technique in which an individual makes as few transactions as possible. The purpose for this is to save money by reducing transaction costs.
Passive traders absolutely love buy and hold investing. They want growth but at the lowest cost possible. Passive investing can be utilized for just about any asset class including real estate and commodities. Passive investing is popular today because of its ease and low cost structure. Some investors shun passive investing because they prefer the growth potential of active funds.
Index funds and index ETF’s are the passive investors dream.
Index Funds Are Old Reliable
One of the most popular passive investments is an index fund. An index fund is a mutual fund that is designed to track the movements of a specific financial market by proportionally holding every security in a given market. For example, let’s say you were to purchase the Vanguard S&P 500 index fund. You would be buying a fund whose performance would replicate the performance of the S&P 500. If the S&P 500 increased 10% during 2010 then the Vanguard S&P 500 Index Fund should be up approximately 10% as well. As you can see from this example, index funds aim to duplicate the performance of a given market.
The Rise Of Index ETF’s
Exchange traded funds have been growing in popularity with investors over the past decade. They are just like index funds in that they allow you to track an index just like a regular index fund but the price changes during market hours. This is different from index mutual funds which calculate their share prices at the end of the day. Index mutual funds can only be bough or sold after the market closes at 4pm. Investors like index ETF’s because of their low expense ratios and low taxable distributions.
Passive investing is a breeze and does not require much decision making. Investors can buy an index fund or ETF and never have to worry about its results for years.
Want to find out more about Passive Investing, then visit Mark Riddix’s site on how to choose the best Mutual Funds for your needs.