Is a passive ASX investing strategy for you?

When should an ASX investor just stick to a passive, ETF-only share investing strategy? You mind find it a better fit for your own style
The post Is a passive ASX investing strategy for you? appeared first on Motley Fool Australia. –

asx passive etf investor relaxing with feet up on desk

There are many investors out there who love the rough and tumble of investing in the share market. Buying, selling, finding your next big investment… these are all things that we investors find absolutely thrilling. But not all investors love the cut and thrust of the markets. Some people choose to invest passively. They want to share in the spoils of investing, but are unable or unwilling to ‘do the work’ of researching stock picks or analysing companies.

Instead, these ‘passive investors’ choose to invest solely in index exchange-traded funds (ETFs), such as the Vanguard Australian Shares Index ETF (ASX: VAS). This is typically done via a dollar-cost averaging (DCA) strategy, where the investor puts their investing on ‘autopilot’ by blindly investing a set amount of capital on a periodic basis (e.g. $100 a week or $1,000 a month).

Some investors choose to invest this way because it takes the ’emotional aspect’ out of the game. Many people (understandably) simply can’t handle the pressure of deciding what price to buy at. Thus, it’s easier to automate the whole process with a consistent approach. But for many investors who try their hand at ‘active investing’, perhaps a passive approach would be better suited.

When is passive investing the best strategy?

We’ve already established that a passive ETF-only strategy is best for those investors who don’t find investing interesting or fun, but still want to benefit from the compounding that the share market brings to the table.

But it might also suit those potential investors whose temperaments aren’t suited to a long-term focused, active approach. The last thing you want to do is put yourself off investing entirely by losing money chasing unrealistic gains. It might look glamorous when one of your friends decided to bet the house on Zip Co Ltd (ASX: Z1P) shares and rakes in a massive gain when Zip goes from $6 to $10 (as is what happened last month). But this isn’t too different from going to the casino and putting it all on red in my eyes. And it is not glamorous in the slightest when the odds cut the other way.

If you’re a thrill-seeker and bring that attitude to the share market, a passive strategy might be a better way to go. The share market isn’t a place for high-octane entertainment, in my opinion. Instead, as legendary investor Warren Buffett once said, it’s instead a place where wealth is transferred from the impatient to the patient. If you’re not ‘the patient investor’ that Buffett speaks of, chances are you’ll end up funding someone else’s retirement.

Foolish takeaway

But if you genuinely want to start a journey as an active share picker who looks for the best businesses to invest in, you can always start with ETFs and work your way up to finding individual companies as your experience grows. Understanding yourself is the first step to becoming a great investor. There’s no shame in going for a passive approach if it suits you best. You’ll still be far better off in the long run that those who don’t invest at all.

These stocks could rocket in a Post-COVID world (FREE STOCK REPORT)

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

Find out the names of our 3 Post COVID Stocks – For FREE!

*Returns as of 6/8/2020

More reading

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is a passive ASX investing strategy for you? appeared first on Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Act Fast - Promotion Ends In
Click Here To Get Started
Act Fast - Promotion Ends In
Click Here For More Info