“I truly believe that the reason people don’t live out their ideal life...is because they don’t know where to learn.”
— Stephen Alred Jr.

Term of the week: Passive Investing

Passive investing aka the buy-and-hold strategy is the investment strategy used by those who are optimistic about the economic future of the markets. You are investing in the market as a whole. If the market goes up, then the value of your investment goes up. If the market goes down, your investments go down. 

Passive investing requires you to hold strong when facing turbulent markets. The second you start making changes based on short-term market movements, you lose most of the advantages of passive investing.  The market as a whole has always ended up higher than it was before it (i.e. its "highs" continue to go even higher). While past performance is no indication of future performance, if we get to the point where that market hasn't grown in a decade...we have bigger problems on our horizon.

Pros:

  • Built in diversification
  • Performed better than any actively-managed fund over time
  • Low costs
  • Saves a lot of stress

Cons:

  • Boring to the people who believe investing should be sexy
  • Requires you to keep your money still for a long period of time
  • A little more difficult to perform tax loss harvesting

Q&A: What annual return is decent from a financial planner?

Q&A: Should I get rid of my credit cards?