Does participating in the financial market require nerves of steel? Only if you are a day trader.
Since most investors are not day traders, the stock market shouldn’t feel like a casino. It is possible to make investments of your money passively, and still experience growth.
A conservative strategy that employs simple measures, like dollar-cost averaging (DCA), can lead to impressive gains over a long period. If you aim to get rich quickly, investing your money on the New York Stock Exchange – or any other exchange for that matter – isn’t an advisable strategy.
Best 6 Passive Investing Tips for this Year
Considering the volatility and uncertainly that clouded over the past year, you may be curious as to the best strategies for a passive investor in 2021. Below, we have compiled a list of some dependable passive investing tips this year, to let your money grow for you.
1. Index Funds
Investing in index funds is arguably one of the best strategies ever invented in the world of financial markets. Legendary billionaire investor Warren Buffett is a great advocate of this strategy – and as they say “the proof is in the pudding” since the benchmark indexes continually gain over time.
So, what is index investing anyway? For passive investors, an index fund is a pool of stocks and bonds that emulate a financial market index’s composition and performance, such as the S&P 500. It is beneficial because of the diversification within the index, paired with the lower trading costs and better tax advantages.
Let’s be honest: real estate investing comes with its own set of problems, headaches, and costs. Would it not be better to invest in real estate, but let someone else handle these matters?
As the infomercials preach: there must be a better way! Well, there is: Real Estate Investment Trusts (REITs).
A REIT is a business that owns and operates income-produced real estate, including residential and commercial. You can buy shares in a REIT and receive a monthly or quarterly dividend. You do not have to do much with a REIT except purchase shares in the stock, so you can receive passive income without doing any of the work involved in owning physical property.
Unsure what to look for? Here are some REITs that you can research:
- Safehold (NYSE:SAFE): 1.4% yield
- Essential Properties Realty Trust (NYSE:EPRT): 3.4% yield
- Digital Realty Trust (NYSE:DLR): 3.4% yield
- Prologis (NYSE:PLD): 2.2% yield
3. Dividend Stocks
Is it worth it buying stocks if you are a passive investor? It depends on a wide range of factors, like your goals and your investment know-how. But here is something you can consider as a passive investor: Dividend Value Stocks.
A dividend stock is a company that issues a monthly, quarterly, or annual payment as part of the profits it earned. But what would be top-notch dividend stocks in this market? Here are a few you can research:
- 3M Co.: 3.46% yield
- TD Bank: 4.27% yield
- Walmart: 1.47% yield
- Microsoft: 1.02% yield
- Johnson & Johnson: 2.52%
One of the passive investing tips would be to add these stocks to your portfolio and allow the payments every three months.
4. Bond Laddering
Are bonds still an appealing investment vehicle? Considering how low-interest rates are, the global bond market would not be an attractive venue. However, despite the trillions of bonds issued by governments and corporations worldwide, investors continue to pour into these debt instruments. And they could be a worthwhile pursuit for passive investors if you utilize bond laddering.
A bond ladder is a collection of individual bonds that mature on different dates. You might have five different bonds that mature every year, and you can reinvest the bonds after each maturation.
For example, your bond ladder could look like this:
- A one-year bond worth $1,000.
- A two-year bond worth $1,000.
- A three-year bond worth $1,000.
- A four-year bond worth $1,000.
- A five-year bond worth $1,000.
This is a lucrative strategy since you can take advantage of higher interest rates at different times.
5. Bank Accounts
Wait a minute. You can be a passive investor with your everyday bank account? Yes.
Unfortunately, too many consumers depend on a basic bank account for their money that lies dormant. This is not prudent for your capital since it is eaten away over time.
The solution is to transition to an account that earns you investment returns, such as an all-in-one checking and investing account like Finch. These types of accounts pay daily returns and allow you to automatically invest directly from the account while maintaining instant access to your funds! Convenience and growth, all-in-one.
6. ETFs and Mutual Funds
Exchange-traded funds (ETFs) and mutual funds are a passive investor’s dream. ETFs and mutual funds are great passive investing tools as they can a part of the whole “set it and forget it” investing blueprint.
In case you are unaware, ETFs and mutual funds are collections of stocks and bonds, giving you a sort of mini-portfolio with a wide variety of stocks. You might want to invest in a mutual fund that focuses on the energy sector, or you may want to buy an ETF that pays a regular dividend, such as the SoFI Weekly Income ETF (TGIF) or the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL).
You may also like: 6 Passive Income Mistakes that should be Avoided
Being an active investor can be challenging for novice traders or those who do not possess enough time to stare at their television screens watching CNBC. Plus, active investing can require nerves of steel, which not all of us can claim to possess!
Instead, passive investing can afford you the opportunity to grow your money, without expending time and energy monitoring your investment. Buy a stock, keep it in your cabinet, and check on it once in a while. These were our 6 best passive investing tips, and trust us, it works!