With so many strategies and options to consider, it can be tricky to know how to best approach your investment plans. Passive investing is a hot topic here at Propiteer Capital PLC, so let’s go through exactly what it means and how to do it well so that it can benefit your “financial summer”.
First, let’s break down what “financial summer” means. In simple terms, seasons are used to describe the stage of financial planning, like a life cycle.
· Spring: this is the infancy stage of your financial plans. This is where you are starting to earn money and thinking about how to make the most of it.
· Summer: your financial direction starts to mature. At this stage, you’re likely be in a stable career with your earnings on the rise. This is the prime season for investors as it’s a great opportunity to make the most of your income.
· Autumn: you’re financially prepared as you start to think about retirement.
· Winter: your investments have now reached maturity and you are able to take advantage of the smart planning made during the summer months.
Timing is everything. It’s important to make tactical decisions with your investments during the summer, giving you peace of mind and financial comfort in the winter months.
So, what is passive investing? It’s an investment strategy, which aims to increase returns through minimal trading. This is also sometimes called buying-and-holding, a way to capitalise on assets gradually. In other words, your aim as a passive investor is to build slow and steady returns.
Why you should consider passive investing
Passive investing can help you avoid some unwanted fees such as transaction or commission costs, which occur with frequent trading.
· Stable returns
Unlike active investing, passive investing means you don’t have to try and predict the market’s next move.
· More reliable
While active trading may create some attractive returns, this is based on luck and timing, which is volatile, so patience is very much a virtue as a passive investor.
Downsides to passive investing
· Based on assumptions
While being a passive investor may be considered a safe route, it’s based on the assumption that the market will generate better returns over a longer period, so there’s no guarantee.
· Long haul investing
This is all about long-term investing, so you need to be prepared to part with your money for a long time.
· Lack of flexibility
Long-term investing means that you can’t react to any market shifts, or even if you simply change your mind, you’re locked in until the end of the financial term.
But the goal is to benefit your financial cycle, so this goes together with passive investing as a tactical approach.
How to passively invest successfully
1. Find the rates and time horizon that works for you
Perhaps you’re new to this strategy or maybe you’re a new investor, it’s important to weigh up your options based on your goals and priorities before committing. A good place to start is to identify how long you’re willing to lock your money away for and the interest you’re looking to gain.
2. Understand where your money is going
Once you’ve found something that works for you, this is where it’s important to do your homework. What exactly are you investing in and how might it impact your portfolio?
3. Understand the risk vs reward
All investments carry some element of risk. This is a natural part of investing and your attitude to risk will determine what you invest in, so it’s important to determine your goal and how much of a risk you’re willing to take.
4. Diversify your portfolio
Once these boxes have been ticked, you may want to consider diversifying your portfolio with your next investment. If you’re already invested in property bonds, perhaps consider stocks or other products to help minimise your overall risk factor as an investor.
5. Get independent advice
If you are unsure, we always suggest taking professional advice from an Independent Financial Advisor.
The key takeaway is that passive investing is a time-effective way to invest with stable returns. It means you don’t have to keep constant watch over the market and you could reap high rewards at the end of the term, so you can get involved during the peak summer months of your financial cycle in a project that suits your goals and watch your money grow so that you’re ready for the winter months.
If you’re interested in adding asset-backed listed bonds to your portfolio, get started here with Propiteer Capital.
Recommended Read: Achieving Diversification using Property