Everything I Need to Know About Passive Investment

by Emily on March 12, 2019

in Articles, Cryptocurrency

There are numerous ways to pile up your wealth. The availability of different investment strategies can propel you into achieving financial independence with you bond, stocks, mutual funds and real estate investments. They let you generate passive income with interest and dividends.

In a broader perspective, when it comes to investing your money, there are two main options i.e. active investment and passive investment. The type of investment strategy you choose depends heavily on your risk appetite and long-term investment goals.

The active approach of investment aims only to outperform the market and yield results. Fund managers constantly monitor and analyze the environment for active management of mutual funds.

Passive investing methods, on the other hand, typically seek to avoid the fee and limited performance that is inevitable in frequent trading. The goal of passive investing is to build up wealth gradually. This form of strategy is also known as the buy-and-hold strategy. The underlying assumption of this form of investment is that the market will post positive returns over time.

Passive Investment Options

Following are some time-tested passive investment options to consider.

  • Fixed Income Bonds

The prices of bonds are going up everywhere, while interest rates are coming down. Bonds are a safe option for an investment portfolio, as it gives the investor some cushion and ensures some safety of the principal.

There aren’t many occurrences where the bondholders have borne a significant loss. If you hold onto a fixed income bond till maturity, then you are likely to receive your payments as well as principal. The range of investment bonds is quite wide like municipal or corporate bonds.

One big disadvantage that tags investments in bonds is the fact that once the interest rates go north the value of the bond goes south.

  • Investment in Equity

Equities are one investment venture that are perhaps most volatile and can be most fruitful. The dynamics are quite unique in stocktrades. The stock market can be tricky. If you choose the right option, equity investment is the best source of passive income. The return from this section of investment outweighs every other option over the passage of time.

Speaking of risks, they are also the riskiest. A wrong choice of stocks can ruin significant amount of investment value.

  • Dividend Investing

Smart and sensible investment in large-cap dividend companies is another way to generate passive income. Blue chip companies are a safe paradise as far as investment is concerned. These companies constantly demonstrate an increase in the payout of dividends.

The lists of blue chip companies vary from country to country and industry to industry. Telecom, cement, financial, steel, and utility companies are often considered the major dividend-paying companies.

However, technology, biotech, and Internet companies prefer to retain earnings, as they believe in expansion of the business rather than payouts in the form of dividends.

  • Gold Investments

It is unarguably one of the oldest form of investment. Gold plays a major role in the economies around the world. Initially, it was the currency for many nations, though it is no longer the main currency anywhere, but still is considered to be mighty effective and precious, of course.

It is one of the safest options to invest in gold. This way you can efficiently manage your investments and attain your financial goals.

  • Cryptocurrency

Cryptocurrency market is highly unpredictable and relies heavily on impulse buying. It is an exciting market that is full of potential, promises and great returns. This is a market which has some of the brightest minds in the world working to craft a future. It has a tendency to yield unprecedented returns to those willing to bear the risk.

And now we answer the dreaded question — How to Get Bitcoins? To get bitcoins you need to download a bitcoin wallet, which is merely a software that facilitates you to safely send, receive, and store funds in the bitcoin network. There are four types of bitcoin wallets that you can easily use: mobile, desktop, web and hardware.

When you are done downloading the wallet, then you need to set up an account on a cryptocurrency exchange that’s approved by your wallet provider. The trading exchange of this form of currency is market places where sellers trade cryptocurrencies to buyers in exchange for flat money, or for other digital currency.

The exchanges accept credit card payments, bank transfers and at times, Paypal payments. For every trade deal, they charge a fee though.

Benefits of Passive Investment

  • It is quite simple to keep a track of the indexes like Sensex if it’s spread out over a longer period of time.
  • It is vital to maintain diversity in the portfolio. The diversification depends mainly on the risk tolerance level of the customers.
  • Passive investment involves less buying and selling and hence, relatively lesser planning. As a long term investor, it is more reliable and predictable.

The Bottom Line

Investments can be scary and financial instruments are often perceived as risky and complex. Passive investing involves a buy & hold strategy – which involves investing in less volatile funds and simply awaiting a good return. The scope of this form of investment is quite wide, individuals who are just learning or beginning to explore investing may feel more at home in undertaking a passive investment strategy. There are various options under the scheme of passive investment, depending upon the risk and return levels underlying each option.

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