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What Is Passive Investing

October 14, 20193 min read

So there's many kinds of investing, right? People tell me, "Oh, I want to try options trading,""Ah, I want to do forex," and so on, and so on and so on.

Today, we're going to be talking about passive investing.

Passive Investing vs Passive Income

So what exactly is passive investing, it's different from passive income.

Passive investing, as the name implies, means you don't do anything. And yet, the money you invest continues to grow.

Trading vs Passive Investing

In trading, you buy a particular thing, or an asset. And when it goes up, you actively sell so that you make your profit. That's active. For example, trading stocks, trading currencies, trading options. These are all trading.

But in passive investing, what we do is we just buy and hold. While this might seem similar to value investing, where you look for a good stock, based on its fundamentals, and then let it grow; Passive investing really just means you buying the entire market versus one particular stock.

What do I mean?

Diving Deeper into What is Passive investing

So you know that the stock market is made up of many different stocks, or companies. And some of these companies can be really really expensive.

For example, some of the technology companies out there, (I won't name any) can cost anywhere between a few hundred dollars to over $1,000 per share. Sometimes, if you were to put in $1,000 into one particular stock, any /tanks/, you're going to lose all that it can be very risky.

In passive investing, we try to buy the entire market, or even the entire sector.

For example, the S&P 500 is an index that tracks the performance of the biggest 500 stocks on the US stock exchange. And so, if you were to buy each individual stock of these 500, it cost you a lot of money. So if you were to buy the S&P 500 index fund, you will enjoy the performance of all 500 stocks without actually buying all 500. You just have to buy the index.

If you look back over the past 20 to 30 years, you know that the S&P 500 has actually increased over time.

And so when it comes to passive investing, buying the entire S&P 500 makes more sense because you can't tell whether one of these stocks might do well, one of them might go down, and so on and so on. But instead, I know that over time, the S&P 500 will continue going up.

That's one example of how you can use an index fund to do passive investing.

Other Examples of Index Funds

Other examples of index funds could be funds that track the Dow Jones, the ones that track the SMB. It can even track a specific country like Singapore, Hong Kong, China, and so on and so on. It can even track a specific sector like for example, it can track oil, it can even track the whole world's stock exchanges.

With passive investing, you don't need to figure out when you should get in when you should get out. There's really no worries. All you have to do: buy and hold on.

Share your biggest takeaway in the comments below.‍‍ And do let us know if you have any other questions about passive investing.

‍‍‍‍We’d love to hear them. Who knows?

Passive investing could be the kind of investing you’ve been waiting for.


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