There are different strategies for doing business successfully on the stock exchanges.
One of these has become very fashionable in recent years, passive investing. So,
if you want to build up wealth successfully over the long term, you should deal with the passive
investment strategy. It allows you to take advantage of high stock returns without having
to build stock expertise. At the same time, you spread your risk through broad diversification.
Hey everybody and welcome to Mindful Psychology! Today, we’re going to tell you about passive
investing strategy and how you can use it to reach your financial goals. Make sure to watch until the
end because it is one of the best strategies I have ever seen before. Let's not waste any
second and move on with the video. What is passive investing?
Passive investing is a very simple and at the same time successful investment strategy that is
particularly interesting for private investors. Although its name does not sound particularly
promising at first, it is very often superior to the active investment strategy. Passive investing
is also known as indexing and was developed by John Bogle, the founder of the Vanguard Group.
Investors who use this strategy keep their securities even during stock market crashes
or high phases. They are not trying to read the courses and make extra profit by speculating.
The return they generate is what the market gives and how it develops. However, it is imperative to
invest widely in numerous stocks, as this is the only method that can be used to map the market.
The expert speaks of active investing when investors not only buy stocks, funds, or
ETFs but also closely monitor the price trend and check key figures. They select individual values
​​that they believe will develop excellently. If the growth curve slows down, they reap profits,
a price collapses, they limit losses. Active investors, therefore, know the financial
market very well and buy or sell regularly in order to generate the best possible return.
For which investors is passive investing suitable?
In principle, anyone who wants to take a piece of the stock market's return can invest passively.
The strategy is perfect for: Newcomers
Those who are just starting out with an interest in stocks, funds, and ETFs, passive investing
is a variant to learn the craft of an investor with as little risk as possible.
Long-serving investors You may be an old hand on the trading floor,
but you would like to invest part of your capital in stocks or index funds
that will secure the return of the market for you with little effort.
Bargain hunters Those who do little pay little fees.
If you are looking for a decent return at low costs, passive investing is the right choice.
You are particularly cheap with an ETF or fund savings plan,
as you can already save a lot when buying. Level-headed investors
Do you have a lot of patience with the stock markets and little time to monitor your portfolio?
Then you too can bet on the right horse with the passive strategy and use index funds.
What are the advantages of passive investing for investors?
So that the stock exchange remains stable and the value of the shares
matches the company's performance, there are enough active investors on the floor
and ensure the necessary adjustment of the securities prices. As a passive investor,
this gives you the opportunity to benefit from the following advantages:
1. Buy and Hold As a passive investor, you are interested
in the long-term growth of the stock markets and not in speculating on short-term fluctuations.
Therefore, you do not sell your acquired shares again after a short time, but hold them for a long
period of time. This behavior is also known as a buy-and-hold strategy and has several advantages.
With the buy and hold strategy, you minimize your transaction costs,
which are incurred for buying and selling stocks, as you avoid frequent reallocation of your assets.
You will also benefit from exponential growth in your wealth due to the compound interest effect.
Since the compound interest effect comes into play particularly well with long investment horizons,
it is worthwhile to start investing as early as possible.
Another advantage of the buy and hold strategy is the tax deferral effect
that you can take advantage of. In general, you have to pay capital gains tax on investment income
(interest, dividends, and capital gains).
This mostly only arises at the moment when you realize your winnings. Since you realize a large
part of your winnings with the buy and hold strategy very late, taxes are also incurred
very late. As long as your profits are not yet taxed, they can continue to work for you
and generate additional profits. Due to the tax deferral effect, your wealth can grow faster.
Successful asset accumulation is not based on active investment strategy methods
such as market timing or stock picking, but on high savings rates and continuity.
2. Trade on the stock exchange and still save time At the beginning of your investment,
you define a strategy and decide which stocks, funds, or ETFs to include in your portfolio.
Then sit back and let the stock market do its job.
As a passive investor, you don't have to do more than review your decision from time to time.
You can confidently leave daily rolling through balance sheets, company reports, and price
developments to active investors. The risk of a loss does not cause you particular grief,
because with the long-term investment you can wait in peace until the prices have calmed down again.
3. All markets are open to you with funds and ETFs In order to invest as broadly as possible in
different countries, industries, and asset classes, passive investors have plenty of choices.
There are funds with bonds, stocks, or commodities from all over the world and every economic sector.
ETFs are index funds: They contain all stocks in a market with the
same weighting as in the associated index. Investors can also use ETFs to invest their
capital in numerous types of securities, countries or continents, and industries.
4. Minimize fee With passive investing, you keep the costs
extremely low. This is important so that your return on investment is not reduced so much.
As already mentioned, you avoid high transaction costs with the buy and hold strategy.
However, passive investing only becomes particularly cheap if you do not pay fund
managers who deal with company analyzes and the like. Instead, you invest in broadly diversified
stock indices, which is much cheaper. While passive investing typically incurs
annual fees of 0.1 - 0.4% of your invested assets, active investing with mutual funds is
1 - 2%. This means that the costs of mutual funds are many times higher. As a rule, fund
managers of mutual funds fail in the long term to generate a return that offsets these high costs.
What are the rules of passive investing?
Basically, investors need 3 rules in order to successfully generate returns with this strategy.
Only get into stocks and ETFs after a trend check, spread generously, and invest long-term.
Time of purchase If you invest a one-off sum,
a trend check of the desired security is worthwhile. You ask yourself the question: How
is the course developing at the moment? The chart shows you the course of the last months and years.
Many investors use the 200-day line as an aid, which makes the trend visible. If the price of the
stocks or index funds is above this auxiliary line and it continues to rise, this is a buy signal.
If the price falls below the indicator or the 200-day line, the time is not
ideal to buy the stocks or ETFs. We would be happy to provide you with detailed advice.
Spread of stocks, funds, and ETFs Every market develops differently. So that you
participate in the return in the course of passive investment and easily get over price drops,
invest your capital in any desired direction: bonds, commodities, stocks, and real estate.
Consider different markets: Europe, America, Asia, ... or worldwide. Don't neglect the common
industries: finance, consumer goods, technology, utilities, etc. The list seems incredibly long,
but you shouldn't be alarmed. Funds and index funds are helpful here because with one security
you buy an entire market and reduce your risk. Invest for the long term
The stock market is volatile - that means it fluctuates, sometimes more and sometimes less.
Sharp price drops are called a bear market or if things get really bad, a stock market crash.
Invest passively so that price declines should not unsettle you. Stay relaxed and keep your stocks
and index funds. In the long term, the markets will rise again and you will get the return back.
4 tips to increase the return on passive investments on the stock market
Passive investing also has to be learned! With these tried and tested tips you will
achieve your return and keep the risk low: 1. Without a strategy, the risk increases
Plan exactly which regions, industries, and securities are to be covered in your portfolio.
Then stick with this strategy: even if some ETFs or funds do better than others at the beginning,
it could only be a snapshot and soon change again. The division of your capital into a
wide range of index funds or other stocks offers the necessary security, especially when prices
are falling on the stock exchange, and lowers the risk of losses over a period of many years.
If you have fewer losses, the return on your investment is logically higher.
2. Time is money - especially on the stock market You want to expand your passive investment in the
long term. How much time should you invest in monitoring the courses after the investment?
Little! The strength of your strategy lies in patience. That doesn't mean you don't check
out various investment products like stocks or index funds every now and then. It is also not
forbidden to get out of a significantly declining market and use low prices to get started. But the
risk of constant market observation is to start active trading and get into the fray.
Expensive wrong decisions can be the result. 3. A savings plan uses low entry prices
ETFs and funds are perfect for a regular savings plan. If you put an amount into index funds every
month, for example, you will achieve a very good average purchase price over the years.
Rising prices on the stock exchange bring you a higher return. Investors also receive favorable
purchase conditions on a savings plan. 4. How index funds increase returns
Since the ETFs only replicate an index, there is no need for expensive management
to take care of the return. The market itself in which the index fund invests
determines the profit. This enables fund companies to equip the ETFs with low management fees.
If you keep your investment costs low, the return on your index funds will benefit.
This makes it difficult for comparable active funds to outperform ETFs.
If you are a beginner or have little experience and want to benefit from
this simple and inexpensive strategy, then we recommend you with the book entitled Passive
Income Strategies by Brian Freedom. It contains 11 methods you can use to set up your own business
online and earn passive income. In fact, this book is a step-by-step guide for those who want to get
extensive information to achieve their financial goals, save money and time. You will also find
online courses, financial independence, Forex trading, and a lot of interesting topics.
And that concludes today’s episode. Do you have anything to say about passive investing income?
Let us know your opinion in the comment section down below. If you want to see more
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Thank you very much for watching and I hope to see you again.