How Passive Investing Can Work For You

While active trading will typically involve a series of trading transactions, passive trading costs less as the investor tends to buy and hold for the long term as opposed to moving cash over short periods.

Different investors have diverse investing styles. There are those who trade frequently, focusing on investing in a few companies that they can make quick gains from, and there are those choose to buy and keep securities for the long term to grow a diversified portfolio.

The great part is that you can do both. While on one hand you can trade to attain short term gains actively, you can also invest passively in long term stocks and have them grow.

While active trading will typically involve a series of trading transactions, passive trading costs less as the investor tends to buy and hold for the long term as opposed to moving cash over short periods.

While passive investing undoubtedly has its perks, there are a few steps to take to ensure that the strategy works for you as an investor to the full extent of its capacity. They include:

1.            Buying a solid collection of long-term holdings, balanced across multiple industries, sectors, market capitalization sizes, and even countries

2.            Never selling these holdings under almost any condition, no matter how distressed they appear to become as long as their fundamentals remain strong

3.            Regularly buying more by depositing fresh cash into your brokerage account and reinvesting your dividends

4.            Keeping costs as low as possible

Most of the money invested in the financial markets is allocated through diversified buy & hold strategies, and a good reason it is the better approach is that it costs less in terms of your expenses, taxes and risk.

Moreover, these investors save a lot of time and learning, as they do not need to research individual companies, keep up with the news and trade all the time.

The investors who can best take advantage of the benefits of passive investing are going to be those who do not want to spend much time managing their assets; these are the people that can let investments sit without interference as well as those who have long-term plans in place.

This does not mean neglect, however. It just means that you have invested funds that not tied to your daily survival and you are willing to wait until it yields the required outcome.

Written by Lawretta Egba.