Boot Camp Day 4
In September, we did a week-long bootcamp program highlighting a few key topics (like position sizing, timing, and handling corrections). That program can be found here. We’re revisiting that concept, except this time with some different topics.
Today, we’re talking about Passive Investing.
These days, investing can feel so black-and-white. It’s either this way or that way, with little to no middle ground in between.
I say, get comfortable carving out some room in the gray area.
Passive Investing
This strategy involves allocating a consistent amount of money into your investments on a consistent basis. Technically, this could be anything, but generally it’s in something broad — like the S&P 500 — and done on a weekly, bi-weekly or monthly basis.
Passive investing has worked out very well for investors over the years. For instance, look at the annual return for the S&P 500 over the last 10 years:
Or consider how well the S&P 500 has done over the very long-term.
Passive Investing With Gray Area
Investors shouldn’t feel forced into something they don’t want to do. If they don’t want to actively invest, that’s fine. And if they don’t want to passively invest, that’s okay too! But remember, it doesn’t have to be all or none — there can be some gray area.
For example, instead of passively investing either 100% or 0% of their funds, they could allocate, say, 75% of their investment capital into funds they feel comfortable with — like the Nasdaq or S&P 500 — and use the other 25% to allocate elsewhere.
Maybe that’s in sectors or industries you feel strongly or passionately about. Perhaps it’s in individual stocks that you’ve done your homework on or love the products of. It could also be crypto, gold, or real estate, among other things.
Personally, I like taking the approach of having a “rock” in my portfolio — an anchor tenant, if you’d humor me on the use of that term for this situation. That way I know I have a good chunk of exposure to the US equity markets, but I’m also free to invest and trade in other assets.
During bear markets when my individual holdings might be getting pummeled, these anchor tenants hold down the fort. Sure, they’re down too, but they’re likely doing better than my individual stocks. And when the markets are going up? Well, I know I’m participating with my anchor funds, and with any luck, my individual names might be outpacing the market.
The Bottom Line: To reiterate, there’s absolutely nothing wrong if you love or hate passive investing — always do what works best for you. Just keep an open mind.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.