Passive Investing

Passive investing is a process of investing for a long term, earning a regular profit share regularly. Passive investing doesn't provide any control on the business entity, however brings a regular source of income to the investor.

What is passive investing?

Passive investing is an investment strategy where the investor buys and holds his investment for a long period of time instead of frequently engaging in trading activities. Investors with long-term goals typically go practice passive investing as it maximizes returns based on the typical upwards trend of the market. As the market is sure to go up in the future, the returns on investment are guaranteed to be higher.

In contrast to active investing, passive investors do not seek to attain a profit from short term price fluctuations in the market. This type of investment reduces the chances of losses that comes with active trading as the investor does not feel the need to buy and sell regularly. He earns a regular income from his investment when the profit is distributed to the investors. However, in this case, the investor has no direct control or involvement in the company or property he has invested into. 

What are the pros and cons of passive investing?‍

The pros of passive investing are:

• Investors do not need to manage their investment portfolios regularly or pay fees to get it managed by professionals. 
• Less headache and lower risks. 
• Investors get steady returns and maximize their ROI in the longer run. 
• Passive investing through indexes diversifies investment portfolios which is important in investing. 
• This is the best option for people who do not need to make quick money. 

Here are some of the cons of passive investing:

•  Investment decisions are not in the investors control as some of the passive investing options are under the jurisdiction of fund managers.
• Getting higher returns from regular buying and selling is not possible in this type of investment.
• The buying and holding period typically extends to over one decade and sometimes over two decades. 

What are the types of passive investing?

With passive investing, the options are usually limited to a few choices. The most popular options are mutual funds, exchange traded funds (ETFs) and index funds. In these funds, the investors do not invest in single securities such as stocks or bonds, instead these funds diversify your investment money across a few different individual holdings. 

This is precisely how an investor's investment portfolio is diversified through the passive trading option. The investor does not have to manage any of the distributions himself, he simply invests the money for a specific period of time and keeps tracking it from time to time, predicting his returns either quarterly or annually. 

Conclusion‍

Passive investing is a viable option for investors who are looking for low risk investment opportunities with regular returns. This option does not make heavy money out right for the investor and the returns are likely to fluctuate with the fluctuations in the market. However, after a few years, this investment still remains profitable. It is important to determine your investment goals before you choose to go for passive investing. 

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