Key thoughts for passive investors

Passive investing has become the most popular investing strategy, globally. Simply put, it’s the strategy of buying the whole market (a diversified reach of stock allocations, ETFs and the like), and continually contributing to your portfolio. The long-term goal is to achieve the average market return.

This strategy avoids buying and selling regularly (like with actively managed strategies), long hours of extensive research into individual companies and stocks. In theory, this sounds like an easy approach to investing, but in practice, it’s hard to keep buying the market when stocks are overvalued, and the short-term performance is looking dismal.

Remember, we cannot predict what will happen tomorrow, but we can look at the stock markets’ performance for nearly one hundred years and learn from how markets have consistently grown. In times like this, it’s good to listen to the late John Bogle’s time-honoured advice

Keep investing

Don’t stop investing when you see the markets moving in a downward slide. If you break the habit of investing, it will be far harder to adopt the behaviour again, and it’s very dangerous speculation to try and time the markets by only buying before a growth phase.

Time is your friend

When it comes to passive investing, time is your best weapon for securing a return on your investment. Every seasoned (even most novices) agree on this point and it’s helpful to be reminded of it when quarterly or monthly statements show negative growth. It’s the three-, five- and ten-year reports that show the robust growth of passive funds.

Impulse is your foe

Money is, and always will be, a highly emotional resource. It affects every facet of our decision making – whether consciously or unconsciously. This makes it challenging to ignore our impulses to sell stocks before we incur further losses. Unfortunately, most people don’t recover from these impulse sell-offs.

Stay diversified

It’s never been easier to buy into the whole-of-market through exchange-traded funds in today’s marketplace. This ensures that the investor can remain diversified. The temptation to sell the wide strategy and buy a focussed strategy means that the investor loses the security of diversification and takes on the risk of fewer companies to try and ensure better returns to make up what the market lost. But the reality is that the market will most likely regain its losses over time.

Stay the course

When we put all of these thoughts together, we are encouraged to stay the course! Passive investment strategies work best when they have time to sit and mature in the markets, rather than prodded, tweaked and adjusted frequently.

If you’re reading this and you still feel like your investment strategy is no longer working for you – then let’s get in touch!