Passive investors rarely trade, but prefer to buy and hold their investments with an eye towards long-term growth and faith that stocks ultimately go up.

Passive investing is a long-term strategy in which investors buy and hold a diversified mix of assets in an effort to match, not beat, the market.

The most common passive investing approach is to buy an index fund, whose holdings mirror a particular or representative segment of the financial market.

Passive investing is the opposite of active investing, a more vigorous strategy offering bigger short-term gains, but greater risk and volatility.

If you can’t beat ’em, join ’em. 

That, in a nutshell, is the mantra of passive investing. This popular investment strategy doesn’t try to outperform or “time” the stock market with a constant stream of trades, as other strategies do. Instead, passive investing believes the secret to boosting returns is by doing as little buying and selling as possible. 

What is passive investing?

Passive investing, also known as passive management, is a thoughtful, time-honored philosophy that holds that, while the stock market does experience drops and bumps, it inevitably rises over the long haul. 

So, rather than try to outsmart it, the best course is to mirror the market in your portfolio — usually with investments based on indexes of stocks — and then sit back and enjoy the ride. 

Simple to understand and easy to execute, passive investing has become the go-to approach for many investors. Here’s how to join them.

The essence of passive investing is a buy-and-hold strategy, a long-term approach in which investors don’t trade much. Instead, they purchase and then hang onto a diversified portfolio of assets — usually based on a broad, market-weighted index, like the S&P 500 or the Dow Jones Industrial Average. The goal is to replicate the financial index performance overall — to match, not beat, the market.  

Perhaps the most common passive investing approach is to buy an index fund tied to the market. These sorts of funds are often known as passively managed, or passive, funds. The underlying holdings in passive funds can be stocks, bonds, or other assets — whatever makes up the index being tracked. 

If the index replaces some of the companies included in it, then the index fund automatically adjusts its holdings, selling the old stocks and purchasing the new ones. Thus, investors profit by staying the course and benefiting from …read more

Source:: Business Insider

      

Passive investing 101: A long-term wealth-building strategy all investors should know

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