Not too long ago, the sure way to building wealth and financial freedom was finding a secure, well-paying, nine-to-five job, building a solid and diversified 401k, and saving a certain amount of cash from your weekly or biweekly paycheck in a savings account.
You worked hard, and if you were good enough at your job, you might be rewarded with an employee of the year commendation, which might come with a glass trophy award you could proudly display on your desk.
Awards like these not only boost your morale but they serve to boost the morale of the entire office. It means your employers don’t see you as an object but as a real human being doing his or her best to get ahead.
But in the post-pandemic world, working for a single firm and heading to the same office every day seems like a thing of the past. Now, in the wake of the “Great Resignation,” the younger generation (and some Gen Xers, too) are creating wealth while working from home, building their freelance businesses such as blogging, freelance writing, or influencing.
On top of this, no one seems so enthusiastic to hand over the control of their savings portfolios to a brick-and-mortar bank, choosing instead to DIY it on a variety of apps such as Coinbase and Robinhood. If you play your cards right, you can use your cell phone to build real wealth while sitting on your couch.
Says the pros at Take Your Success, Robinhood is a favorite app for trading stocks, cryptocurrencies, options, and ETFs. It’s commission-free and requires no minimum deposit. It boasts an award-winning design and offers the user real-time market data. It is a perfect method for passive investing.
But what is passive investing, and how can you benefit from it? What are its pros and cons?
According to a recent report by NerdWallet, passive investing is defined as a long-term investment strategy for building real wealth by purchasing securities and holding them for a long time, regardless of whether the market goes up or down.
Passive investing can lower risk since you are investing in a wide range of industries and asset classes and not just one individual stock.
Slow and Steady Wins the Race
To get a better understanding of passive investing, you might be reminded of the old cliché, “slow and steady wins the race.” Says one financial planner in Maryland, the overall goal with passive investing is that you essentially replicate your returns of the market index you are invested in, again and again, and again.
The longer you hold on to your investments while ignoring market volatility (which is out of your control, by the way), the longer they will have to reach maturity and the more money you will make. Don’t think of overnight riches, but instead think in terms of building wealth for your retirement, which might be decades down the road.
A Popular Investment Strategy
Says NerdWallet, passive investing is one of the most popular types of investing. According to a 2021 Gallup Investor Optimism Index, over 70 percent of U.S. surveyed investors pointed to passive investing as a favored strategy for the best returns in the long term.
Only 11 percent of those surveyed said that “timing the market” is the key to financial success and even more important than high returns in the long run. But almost 90 percent of investors said “time in the market” and not “timing the market” was not only more important, but you will sleep better at night.
Active Investing vs. Passive Investing
With active investing, you will find yourself researching individual companies and, in turn, selling stocks to beat the stock market. In other words, you become an active day trader, which some investors interpret as risky option.
But with passive investing, you purchase a basket of assets and attempt to mirror how the stock market is behaving. According to a Virginia financial advisor, which type of investing you choose depends on what your financial goals are in life.
For instance, if you’re investing in a retirement account in which you plan on holding your investments for 20 years, passive investing is likely the better option since you won’t be incurring the fees associated with buying and selling almost daily. That is unless you’re using a trading app, like Robinhood, which doesn’t charge trading fees.
In addition to considering your investment strategy, it’s also wise to look at the best bank promotions available. These offers can provide additional financial benefits, such as bonus cash, waived fees, or higher interest rates. Make sure to review the terms and conditions of these promotions to ensure they align with your financial goals.
If you examine the savings in fee costs associated with passive investing over a 20 to 30-year period, you will realize just how cost-effective it can be. How much risk you are willing to take will also play a role in how you wish to invest.
If you are the type who runs at the sight of charts or who falls prey to FUD, that is, fear, uncertainty, and doubt, which can be spread all over the mainstream financial news daily, active investing is not for you.
But if you are the type who ignores market volatility and shuts out all the doom and gloom investment noise you see and hear on YouTube and X (Twitter), passive investing is your financial solution for building significant wealth over the long term.
