Passive Investments
Robert Kiyosaki, a famous financial educator and entrepreneur, describes a passive investment as everything you may obtain that generates revenues, maximizing his purchasing power.
For example, when you finance a rental house, it is a passive investment because, no matter how much it increases in value over time, it will continue to put money in your pocket to pay off the mortgage. Even if you pay cash for this home, you must pay maintenance and taxes.
Buying a car is not an example of passive investing. Much worse than property, which continues to appreciate over time, a vehicle depreciates when it leaves the showroom, not to mention the additional costs associated with IPVA, gasoline, maintenance, insurance, etc. And so on, your money disappears without your knowledge.
Even though you are thrilled to buy these items, feeling that you are making a wise investment, they are passive investments, which means that they drain your funds over time, keeping you in the “rat race.”
Why Passive Investing?
More than 90% of the portfolio’s long-term performance variance may be due to the distribution of assets across asset classes, as indicated in the asset allocation article. Diversification shows that the amount of money you set aside for each investment in your portfolio is nine times more essential than when and what you buy.
Furthermore, Ibovespa loses up to 66% of active equity funds in Brazil; this indicates that two-thirds of equity fund investors earn lesser returns than those who merely invest in ETF BOVA11 (an index fund?).
Why spend so much time examining the most diversified assets to invest if 2/3 of individuals lose to an index fund and asset allocation is nine times more essential than investment timing if you are not an experienced trader?
Index Limitation: Passive funds are limited to a specific index or even a set of investments with little or no variation. That way, investors are locked into these stocks, no matter what happens in the market.
Small returns: By definition, the passive fund cannot track market shares as they are blocked.
Asset Allocation: Recommended Portfolio
I will offer a portfolio that I feel is highly intriguing to conservative investors who wish to expose a portion of their money to variable income to pursue more significant returns.
The goal is to create a well-balanced portfolio with a few simple assets to invest in while being well-diversified across multiple asset classes.
Fixed Income: Treasury Direct
Government bonds are an excellent place to start if you want to invest in fixed income.
If you’re still unsure what it is, look at this article: Treasury Direct.
If you already know how to invest, learn how to invest more effectively in Treasury Direct with these step-by-step instructions.
Index Funds Provide a Source of Equity Income
I advocate index funds for equities.
If you already know how to invest, learn about Index Funds with these step-by-step instructions.
Portfolio Balancing
After you’ve built your initial portfolio, all you have to do now is rebalance it every month, which you may do with your new contributions. Invest in keeping this equilibrium. Why?
This strategy works because you’ll constantly buy more depreciated assets (buying low) and sell the ones that have gained the greatest (selling high).
Conclusion
The passive investment allows you to put in significantly less work while putting together and managing your wallet while reaping substantial benefits. You may be confident that it is well worth it when you consider the savings in terms of money, concern, and, most significantly, more time “off the market.”
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