Looking around the internet, I notice that passive investment approaches are more and more ridiculed (surprisingly, especially by young people – even though a passive investment approach would be most beneficial for them as it requires almost no capital and at the same time has a long time horizon; two very strong factors in the financial math equation…).
On the other side, it’s true though: Given the current situation in the world, passive investing is not likely to perform well – “well” in a sense of good (3-4%+) constant returns over the next (maybe 10-15?) years. Volatility is likely to be quite high as the world order changes (Ray Dalio) until the dust settles.
However, let me say this:
There are essentially three types of investors
a) I don’t know anything about investing, and I actually don’t care, but at least I have a consistent monthly savings plan.
b) When I deal with my finances and enter the financial world, I always try to do my best within my power, to inform myself without bias, to know the opportunities and risks and to optimize my portfolio as best as possible – just as it is in line with my life. If I have questions, my small network of like-minded people helps me.
c) “Want to know how I make 12-20% ROI on my investments? After you check out my trading routine on Youtube, which is 3-5 hours a day and the rest is relaxing at the beach, go to my weekly Podcast with excerpts and quotes from the world’s richest trading guys, coolest companies, and get to know all the brand new hot stocks for this week. Oh, and if you want to buy the same software which I use to generate my 12-20% ROI, drop me DM for discussion.”
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Ok, Back To You:
Which one would you consider yourself?
Which one would you like to be?
If one of your answers contains c), you should go back to square one, the Principles of Wealth Building, Part 1.
Don’t try to become an ego-investor. Ego-investors are neurotic messes. Even though their ROI MAY BE two digits-short term, their long-term surviving rate is most likely one digit (in years).
Rather, your goal should be to not become a bad investor. Is passive investing bad investing? No. It is just not optimal investing – but for the vast majority of people it is best investing. Huh?
If you don’t know anything about investing, start with a passive approach, while at the same time start to accumulate sound knowledge. Knowledge about the stock exchange, about the mechanics, about chances and risks, about companies, about diversified portfolios, etc.
Then, it is time to add more stuff to your portfolio (stocks, commodities, real-estate, MAYBE even crypto, etc…). Step by step and well balanced.
Because here is the secret: The longer you are around, the more ROI you can get. According to the old (anti-)diet joke: How can I eat more? Eat less.
Consistency is key. Worry about high effective short-term leverage later, means, when you are theoretically able to repeat the process from scratch – both psychologically and technically.