Even the most active, enterprising investors can benefit from passive investing strategies.
The rise of low cost index funds has changed the investing world as we know it.
With most active funds charging management fees which are multiples of the extremely low costs of owning passive funds, investors who believe they will receive higher returns by going with such an active strategy often see their gains wiped away by the fees that are charged.
Active strategies are great, and for those enterprising investors looking to trade in a self-directed account, continuing to do so can produce great results over the long term.
Supplementing individual stock picks, or one’s actively managed fund with a passive fund, however, can smooth out many of the peaks and valleys one will otherwise experience with picking a smaller bucket of stocks (I’m referring mostly to low-cost index funds, but sector specific funds will also lower volatility from picking a few names in said sector).
Perhaps the most enticing reason for investors to own passive funds has to be the ability to sleep better at night; knowing one can avoid looking at the stock market on a daily basis, or minute by minute as the temptation arises, the focus shifts from short-term movements in the stock price of a few companies to the broader economic performance of a sector or an index, something that is generally outside of one’s control, promoting the idea that long term investing does not need to involve stress.
Invest wisely, my friends.
