What is passive investing? In this article, we will explore the aspects of passive investing as well as suitable and effective investment channels.
What is Passive Investing?
Passive investing is a long-term investment method that aims to generate returns gradually over time. Passive investing reduces costs and increases long-term returns by reducing the need to buy and sell securities.
Supporters passive investment strategy believe that the market will see positive changes. They want to enter and hold profits in the market for a longer period of time, a strategy known as “buy and hold”.
When a person buys shares in one or more businesses and continues to hold them for a long period of time, we can define them as a passive investor. But passive investing usually means buying shares in a fund that tracks the performance of an industry, company, or economy.
In recent years, in particular, more and more investors have realized that consistently outperforming the market is very difficult, if not impossible. As a result, funds have become more popular.
Passive Investment Strategy
There are many passive investment strategy that you can apply. One of them is the choice smart investment from index funds, where you invest in a certain set of stocks according to a market index such as VN30 or S&P 500. This strategy helps you benefit from the overall growth of the market without having to research each specific stock.
List of Passive Investment Funds in Vietnam
In Vietnam, there are a number of prominent passive investment funds that you can refer to. These funds often track stock indices and provide investors with the opportunity to invest in a diversified portfolio. Some funds such as ETF VN30 or VFMVN30 are popular choices for investors who want to participate in the market passively.
Onus Auto Investment
An important aspect of passive investing is automated investing. Automated investing allows investors to set up a recurring investment plan without having to intervene on a daily basis.
For example, you can set up a monthly transfer from your bank account to your investment fund. This not only helps you maintain investment discipline, but also takes the pressure off of making decisions at inconvenient times.
Onus Auto Investment is an investment method that uses software applications, artificial intelligence (AI) or through investment BOTs to make cryptocurrency investment decisions on the Onus investment platform without direct intervention or impact from investors.
Thanks to this extremely effective investment method, Traders can seize the right opportunities to increase investment profits without having to closely monitor the market.
Passive Investment Channels
There are many passive investment options available to you. In addition to mutual funds, you can also invest in bonds or real estate through trust funds. Each passive investment option has its own pros and cons, so it is important to do your research before making a decision.
Passive Stock Investing
Passive stock investing is one of the most popular forms of passive investing. Instead of constantly buying and selling stocks, you simply choose an index fund and hold it for a long period of time. This not only reduces trading costs but also allows you to take advantage of long-term market growth.
Advantages and disadvantages of each investment method
Each investment method has its own advantages and disadvantages, depending on the profit target, risk appetite, analytical ability, as well as the time and resources that the investor can spend. Understanding your own needs and capabilities will be the key factor to help investors make the most appropriate decision.
Passive Investing
Advantage:
- Cost savings:
With a strategy that closely tracks the performance of the general market, passive investing does not require frequent trading, thereby minimizing transaction or management fees, bringing long-term financial benefits to investors. - No need for high expertise:
Because there is no goal of beating the market, passive investing simplifies the analysis process. Investors only need to choose the appropriate index or fund and determine when to participate. - Tax efficiency:
One significant advantage of reduced trading frequency is that passively managed funds are often highly tax efficient.
This is because when securities are sold, the profits generated will be subject to capital gains tax, and this cost will be borne by the fund members. However, because passive funds rarely make purchases and sales, the tax burden incurred is usually significantly lower than that of actively managed funds.
Limit:
- Limited Profits:
This strategy often only yields returns equivalent to the index being tracked, thus failing to take advantage of opportunities from products that have the potential to outperform the market. - Lack of flexibility:
Passive investing is inherently less flexible, especially in the way funds operate.
For example, as mentioned, an index fund typically tracks an underlying stock index by buying and holding shares of all the companies that make up the index. This process occurs regardless of how the market conditions change over the investment period.
This means that if an asset in the portfolio declines in value or there are signs that the asset's value may decline, the passive fund must continue to hold that asset as long as it remains in the index that the fund tracks.
Active funds, on the other hand, have more options in similar situations. They can actively sell risky securities, or use hedging techniques such as short selling or using put options to minimize potential losses. Passive funds, on the other hand, do not engage in these activities and simply stick to a defined index portfolio.
- Limited Profit
Another drawback of passive investing is that the potential for returns is often lower than that of actively managed funds.
Passive funds typically mirror the performance of a benchmark index and rarely outperform it. Actual returns may even be slightly lower due to management fees, although these are typically low. Active funds, on the other hand, have the potential to outperform, thanks to a flexible strategy and timely intervention by the fund manager.
However, it is important to note that pursuing higher returns also means accepting a greater level of risk. Therefore, applying effective risk management methods always plays an important role in ensuring investment success.
Active investment
Advantage:
- High flexibility:
Active investing allows investors to exploit short-term market fluctuations to maximize profits. This strategy usually aims to outperform the overall market. - Risk prevention:
By closely monitoring the market and adjusting their portfolio, investors can proactively minimize potential risks.
Limit:
- High investment cost:
Active investing often requires more trading or larger fund management fees, resulting in increased costs for investors. - Technical requirements:
To beat the market, investors need in-depth knowledge and extensive experience. If they do not have enough expertise, they can choose open-end funds managed by experts, but this comes with higher management fees.
Conclude
What is passive investing? Through this article, HVA Group Hope you have a better understanding of the concept along with the investment strategies and channels involved. Passive investing not only saves time but also brings high efficiency in the long run. Let’s look at the passive investment options and start your investment journey!
