How to get started passive investing

Get started passive investing by opening up a brokerage account and using tools to research and construct your passive portfolio from, like Investipal.

Passive investing is an investment strategy that seeks to maximize returns by minimizing costs and minimizing the amount of time and effort required to manage the portfolio.

The passive investor seeks to achieve these goals by investing in a diversified portfolio of index funds and exchange-traded funds (ETFs) that track broad market indexes.

The philosophy behind passive investing is that the market is efficient and that it is impossible to outperform the market over the long term after taking into account the costs of active management. The goal of the passive investor is therefore to achieve the same returns as the market, but with a lower cost structure.

Passive investing has become increasingly popular in recent years as investors have become more aware of the costs and risks of active management. A number of studies have shown that the vast majority of active managers fail to outperform their benchmarks after taking into account the fees they charge.

What's the appeal?

The appeal of passive investing is simple: it is a low-cost way to achieve the same returns as the market. For many investors, this is a more attractive proposition than paying high fees for active management in the hopes of outperforming the market, which is a difficult task.

Passive investing is not without its critics, however. Some argue that the market is not always efficient and that there are opportunities for active managers to generate superior returns. Others argue that passive investing can lead to a portfolio that is not well diversified and that tracks the market too closely.

Active vs. Passive Investing

The debate between active and passive investing is a long-standing one. Active investors believe that it is possible to outperform the market by picking the right stocks and timing their purchases and sales.

Passive investors believe that the market is efficient and that it is impossible to achieve returns that are better than the market as a whole. The active vs. passive debate has important implications for investors.

Active investors are typically willing to pay higher fees for the chance to outperform the market.

Passive investors are typically more focused on minimizing costs. The costs of active management can be significant. In addition to the fees charged by the fund manager, active investors also incur costs related to trading commissions and taxes. These costs can eat into returns and make it difficult for active managers to outperform the market.

Passive investing is a more efficient way to invest. The costs of passive management are lower, and there is no need to incur the costs of active management. Passive investing is therefore a more cost-effective way to achieve the same goal of long-term wealth creation.

How to get started passive investing?

  1. Open up a brokerage account
    The first step is to open a brokerage account. Many new investors like to get started with Robinhood, Schwab, Fidelity or TD Ameritrade. Once you open up your online account, you can transfer money over and make regular contributions.

  2. Identify what to invest in
    This can be a more daunting task for first time investors but it doesn't have to be. There are hundreds of low-cost ETFs out there that own a basket of stocks like VOO, SPY or QQQ. You can purchase units of these ETFs directly through your brokerage account. However, to diversify your risk it is important to have a wide array of exposure including different geographies, different asset classes (stocks and bonds), and you can even tilt.
    You can easily do this with Investipal. A free tool to identify passive investments, research and construct a portfolio from. Get started for free here.

  3. Rebalance
    On a quarterly or annual basis you should look at how your investments have performed and if they still resonate with your goals. You can rebalance, review your holdings and make any adjustments. More frequent rebalances can introduce higher costs and doesn't necessarily lead to better returns. The whole point of passive investing is so you don't have to monitor your investments after all.

Passive investing on your own may sound overwhelming but with the right tools, anyone can do it on their own!

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