A Guide to Passive Investing
Passive investing is an approach to investing that combines two purposes simultaneously: Maximizing investment returns over the long run and keeping in check the high investment costs by minimizing transactions in the investment portfolio. The two purposes are not mutually exclusive. Frequent trading within the portfolio can run up expenses and decrease overall returns. Passive Investing with an Indexing Strategy: Index investing is one of the principal techniques used by investment managers when focusing on a passive investment approach. An index fund is a pooled investment such as a mutual fund or exchange traded fund (ETF) whose composition mimics a particular stock index such as the S&P 500 or Dow Jones Industrial Index. Index funds are not restricted to US benchmarks. Indeed there are also index funds for international and global indexes. Furthermore, index funds are not restricted to stock investment; there are bond index funds as well. Index investing was made popular by the Vanguard Group, a mutual-fund firm known for conservative, low-cost funds. Your choices are by no means restricted to that firm. Today, many investment companies offer low-cost, broadly diversified mutual funds and ETF's as important components of their offerings. Keep Your Costs Low: Keeping costs low is one of the main advantages of investing passively with index funds. Buying and selling within an index fund is generally done only to maintain the investment portfolio's weighting approximate to its benchmark index. Consequently, transaction costs are ultra-low.