How To Understand Passive Investment

I'm going to talk to you about how to understand passive investments. The simple difference in investment terms between active and passives is as follows. Active investment is a mechanism where an individual or individuals in the fund management house in essence, run and manage your money for you, along with other investors within that portfolio.

Of course, you're paying an annual management charge for those expertise but the research and the evidence suggests there isn't enough to validate those extra fees in relation to the returns that you might receive. Passive investment is simply a mechanism of accessing markets that attract with certain indices. A simple comparison is if you go to the petrol station to fill up your car with fuel, you're presented with two choices, unleaded or super unleaded.

Most people will rarely use the super unleaded version because they see the increase in price and are not certain what extra value they will receive. The same applies with passive against active investing. You're not entirely sure what you might get back in relation to the extra cost you that you might pay with active.

Hence, why passive because it tracks indices, can be just as beneficial and cheaper. A good example is if you own a property to rent for investment purposes, you'll receive two things - one, asset appreciation on the bricks and mortar that you own, and two, rental income that you receive. The point is no one is controlling that market for you.

It's happening as a matter of right. The only thing that can determine things not going as planned is one, the market value of the property decreasing because market forces are decreasing and two, you not having a tenant to receive your rental income. The same applies to passive versus active investing.

With passive, you have the natural right to receive the asset appreciation and the income earned where no one, unlike active fund management, is making those bets and calls for you. And that's how to understand passive investment. .