Disclaimer: I am not a financial advisor. You are trading at your own risk and should consult a financial advisor for any investment decisions. Do your own due diligence when considering investing, and this information is for education/informational purposes only. The article “’Revealing One Massive Reason I’m Choosing Passive Investing” serves as educational content, not investing advice.
Disclaimer #2: This post contains affiliate links. For more information, please see the disclaimer page.
I recently finished reading The Intelligent Investor, which was an excellent book written by Benjamin Graham. It’s a book based on value investing and choosing the right stocks for our portfolios, but of course, it included much more information than simply just this.
Yet, when I was over half finished with the book, I realized I didn’t want to take an active approach to invest.
Instead, I want to be a passive investor.
Now, this is something I will discuss in a little more detail later. However, why would I want to choose passive vs active investing? Do I not have the confidence to actively pick stocks? And well, no, that is simply not the answer.
There is, in fact, really one only answer as to my reason to be a passive investor.
And that one answer would be time.
Passive Investing Saves You Time:
Let’s start with the question, what’s passive investing? Once we better understand this concept, you’ll realize why it saves you time.
Think of passive investing as not being very active in your trading or what you hold directly. Instead, a financial advisor, Robo advisor, fund manager, or maybe an index does the work for you.
What you simply do is gather the necessary capital needed, hand it over to the fund or security, and let them do the work.
While you will say the same thing about a stock, think of it this way. With a stock, you have to go out and actively pick which ones you want to add to your portfolio.
So, maybe, you’re going to hold anywhere from 10-30. Then what you must do is to research a bunch of companies and their stocks. Once you’re done and feel it meets your criteria, you add it to your portfolio.
But then, after time, you’re not just done there. You will want to keep a tab on the company to continue to evaluate if it’s a sound investment or whether you should sell.
See where I’m going here?
Active investing can be a lot of fun and very interesting to do. However, the research and work needed once you have found the stock is significant and adds up over time.
With passive investing, I can just put my money into someone or something and let them do the work. Hopefully, I will have earned a considerable amount of money during an extended period.
But Active Investing Can Grant You Better Returns:
This statement is true. There are investors out there who are consistently beating the average returns for the market. For those who are, I applaud them.
Yet, with passive investing, you may only receive the returns that are replicated from what the market yielded, depending on what you’re investing in.
The major advantage of passive vs active investing, is that it saves you time. So then, this question maybe comes down to, what do you rather have more of, time or money? If it’s money, well, then your earnings aren’t capped as an active investor.
Instead, if you’re looking to acquire more time while hopefully having a sound investment, then it seems clear to me that the winner would have to be a passive investment strategy.
Also, at the end of the day, money is money. You can always find more ways to accumulate it. Yet, there’s no strategy out there that allows us to acquire more time.
One of the questions I believe is the most important to ask first when deciding upon an investment strategy is “Do you want to spend time investing?” If the answer is yes, it seems likely that those will choose to be active or somewhat active in their investments.
If not, then reasonably, you can probably expect the opposite.
Even if you’re a passive investor, the returns aren’t all necessarily going to be horrible. They can be relatively good in some cases. Yet, we can’t base our investment decisions on past performance, and while indexes like the S&P 500 have had historically significant returns, it instead needs to serve as an idea.
An idea that requires more analysis of the security and to determine whether one deems it worth holding.
It Doesn’t Mean I Won’t Actively Invest:
This concept still does interest me. I think it would be exciting to try to find an excellent company undervalued by the market and buy and hold shares for however long until it is adequately valued.
The Intelligent Investor is an investing book that I’ve really enjoyed reading, and its advice and strategies seem to be really sound not to try out.
Plus, who doesn’t want a chance to earn a 100% return on something? I know everyone would grasp at the opportunity just to do so.
As you know, I’ve done stock reviews in the past where certain stocks have been evaluated through my criteria. I’m still interested in doing more and want to release some more. But the time will come for that.
Besides, I still have to research what index funds or ETFs I really want to invest in. So whenever I have built my portfolio or have found some funds I like, I plan to share them in my monthly newsletter. Which is a subtle hint being made not so subtle to encourage you, the reader, to sign up for the newsletter.
Did you know that you also get a free budget spreadsheet with it? It’s pretty awesome if I do say so myself.
What Can the Reader Takeaway from this?
That everyone should choose their own investing style. There seems to be no right or wrong answer as to what the best investment style is. Of course, there will be styles and investments that grant a much higher return, but then it should be asked, at what cost does it take?
Everyone can make the argument that passive investing is much better than active investing. IN fact, it seems a lot of the significant influences on the internet are doing it. You can search on YouTube passive investing, and plenty of videos will appear.
Yes, the returns from investing in something like the S&P 500 are outstanding but don’t shy away from betting on yourself and trying to beat the market yourself. Just research, analyze, test, and many other things to minimize the number of potential losses one will suffer.
So, now that you’ve heard my investment style, what’s yours? Are you a fan of passive vs active investing? Leave the answers down below in the comments section.
I will be going over some more factors on why passive investing can be better than active investing in a later blog post. Be sure to follow the blog on Instagram for when the article goes live, or of course, subscribe to the newsletter for more.
Thanks for reading.