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How To Protect Your Home

Living the Life

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5 April 2021

Buying a house can be exciting. It is likely to be the most expensive purchases in your life and a space where you will create lasting memories with your family.

Not everyone can afford the luxury of having a storm-ship trooper guarding their homes at all time. Lets face it, times are hard.

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It is important to keep your home safe and we will explore ways in which you can do that from threats within and without. The aim is not to be paranoid however we cannot be careless and by taking some precaution, you can deter any would be burglars.

Alarms

Get a smoke and a carbon monoxide alarm and test them. Government regulation and standards means that homes need to have smoke alarms and carbon monoxide alarms but if they are only put to test when there is an emergency, it may be too late.

Get an app or use your phone and set a reminder for example every first or last Saturday of the month, you test your alarms. Hopefully it does not become an emergency but it is better to be prepared.

On the topics of alarms, it is also good to get a house alarm that is activated when you are away should someone break in. It serves as a deterrent and will have most burglars thinking twice about breaking in.

Clean your Home

Once in a while and more frequently than not, it is necessary to clean the house because it gives you the chance to get up close with floor boards, windows, gutters, piping and things you would not normally notice on a daily basis. Things like leaks or mould developing somewhere or damp can be spotted early and dealt with before there is any lasting damage.

Places like fences can be damaged, light bulbs can be blown for weeks and all this sends a signal that you are either not around or not paying close attention.

Ring Door Bell

This product is literally a game changer and it took the ubiquitous door bell and made is something of a surveillance tool what allows you to be alerted, monitor and interact with anyone that comes within a certain range. There are different ways you can configure it and you can have multiple in and around your home.

Not suggesting you make your home a big brother house or spy on your neighbours however you can place the cameras in such a way that people are aware of their presence and if they have no business being there, they leave the premises.

There are other companies that offer similar products and so it is worth exploring the options out there and find what works for your budget.

Doors and Windows

Keep your doors and windows closed and locked. This is easy to do in cold weather or cooler climates but during the summer or in warmer countries, it is easy to leave a back door open or a window open to allow fresh air. The problem here is you are likely to forget the window open and fall asleep which could be dangerous if the window is on an easily accessible floor such as the ground floor or first floor.

It is necessary to check that windows and doors are locked before going to bed or before leaving the house even to go shopping. Develop a routine and double check just to make sure. This little act can save your life and has saved people’s lives.

Also a good time to mention do not advertise your gadgets. Yes people know you have a TV, Smartphone and the latest tablet however there is no need to leave you blind drawn, TV facing the window so everyone can see you are watching the latest episode of The Mandalorian on Disney+.

The Use of Light

There is some debate as to how lights can be used as some people feel there are merely decorative or sometimes they can attract too much attention. Using external lighting in a clever way can achieve both. If your home is at the end of a terrace and with your garden overlooking a dark walk way, your garden lights are not merely decorative as they serve a purpose of providing light in such a way that any one lurking will hesitate to hang around.

A well lit front yard especially a security light will draw attention when motion is detected and this will deter any potential burglars. External lights add to the beauty of the home but more importantly, they deter any thieves because the lights will draw attention and maintain focus on any persons in the vicinity.

The security lights come on for only a few seconds and are bright and any decorative LED lights that stay on longer are energy efficient so they are not taxing on your light bills.

Keep Them Guessing

One useful gadget you can use is a timer switch. You can have the external lights in plugged in to a timer switch which means the light will come on and go off at a specified time. When you are away on holiday or at least planning to, it is not a bad idea to have a small lamp or light source plugged into this switch and have it come on at random times during the night to simulate a short toilet break.

Sometimes when you are home, leave the blinds closed as though no one is home and see if anyone comes knocking. The idea is to leave any potential burglar unsure of you being at home. If you are going to be away for some time there are a number of things you can do to protect your home.

1: Have someone you trust spend a night or two in your house

You can tell your neighbours if you trust them that you are away and someone will be spending a few nights at your house. That way there are no nasty surprises when your friend show up at your door and your neighbours are not alarmed when they see a face.

2: Have your bin brought forward

If letters are piling in your letter box or the bin is still how you left it before you travelled, these are signs you are away so you can have a neighbour take your bin forward to be collected so that it still looks as though you are home to any potential observers.

3: Use social media wisely

Not everything needs to be shared online and you can talk about it when you get back. Be mindful of what you share and on which platform. No need to give people ideas to break into your home while you are away on holiday.

Final Note

We feel safe in our homes and apart from having documents and data at home, we have our family members old and young. It is important to protect our homes from internal and external threats.

It is good habit to join any Facebook groups or social media groups in your local area so you know what is happening because not everything is captured on the local papers or news. Doors and windows should be closed and locked at night or when leaving your home and it is good to build a routine until it becomes a habit.

If you plan to be away for an extended period of time it is good to have someone you trust spend a few nights in your home, take your bins forward for collection and check the house in case of anything developing in your absence.

Make use of technology such as Ring Door Bell and other similar products so you are notified when someone is within range of your home. Test your smoke and carbon monoxide alarms as often as you can by setting a reminder on your phone so you are consistent and prepared.

How to Sleep Better

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1 April 2021

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Sleep is one of the most important things we can do with our time especially as people who need to be at the top of your game, your sleep routine is important. Resting is necessary and sleeping is one aspect of it. Other aspects include taking a walk, reading a book, meditating and anything else that helps your mind and body relax.

Recently I have seen arguments that suggest sleeping makes one lazy, or is a sign of weakness – I even heard the phrase, I will sleep when I am dead. Well not sleeping enough may make that a reality sooner rather than later.

I came across a good book in this link that highlights the importance of sleep many of which are beyond the scope of this article. Google and some other companies have come to see the importance of sleep or even a nap and have provided pods that allow their staff to enjoy that during their break time.

Sleeping well at night has a direct impact on how you feel in the morning and in many ways including your mental and emotional wellbeing. It is also important to note the difference between merely being in bed for eight hours and actually sleeping in those eight hours.

One can mean spending that much time in bed and waking up feeling as though you have wrestled an Elephant in your sleep.

Without a doubt getting some quality sleep after a long day is necessary however, how can we sleep better in the little time we have and what can be done if you are not able to sleep?

Here are a number ways you can improve your sleep.

Get to Know Your Body

Our bodies follow a pattern called the circadian rhythm which is a natural internal process that regulates your sleep and waking cycles. Think of it as a biological clock that keeps tracks of when you sleep and when you are awake.

This rhythm is affected by external factors such as light and dark and works with the hormone melatonin and cortisol in your body which helps to induce sleep and waking up.

Working with this rhythm will help you sleep naturally and wake up feeling refreshed. The way to accomplish this is to draw your curtains or blinds when you wake up, allowing as much light in your room as possible. This will allow you to wake up and be alert as it reduces the effects of melatonin.

When it is time to sleep, avoid bright screens for some time before you go to bed. Some experts have recommended between one to two hours before you sleep and whilst the time will vary, the longer the time, the easier it should be to fall asleep.

Watching your favourite comedy show or Netflix series just before bed as good as it sounds, will affect the quality of your sleep. There are alternatives to this including listening to Podcasts, or playing an audio book of which there is an abundance on a range of platforms.

When it is time to sleep, ensure your room is dark and that there are no light sources. Where you can, use a mask to cover your eyes as it will restrict extra light. Just remember to remove the mask should you wake up for a toilet break in the middle of the night.

To fall asleep easier when you wake up at night, you can have a dim light source or some night light that will provide enough light so you do not trip over something and you can fall back asleep easily once your business is done.

Your Phone, Computer and Devices

These smart devices emit light that affects the release of melatonin which is a hormone that helps you feel sleepy and fall asleep. Watching TV late, using your smartphone or any such devices will affect the release of melatonin which will have an effect of when you eventually sleep and the quality of sleep you will get. The professionals suggest we do not use these devices for a few hours before sleeping.

By not using these devices a few hours before bedtime, not only is melatonin produced properly, our minds have a chance to rest and prepare for bed rather that have wandering thoughts.

Exercise

There is no running or cycling away from it – exercise is important for a healthy life especially sleep and it literally an investment in your health. In our article we covered the benefits of exercise of which sleep is one.

Regular exercise helps you sleep better for the following reasons. You are more alert during the day so there is no chance of a long afternoon nap that will affect your body’s natural rhythm.

It also improves the symptoms of insomnia which affects a significant portion of the adult population. Regular exercise improves the amount of time you spend in deep sleep – this is very important because it allows your body to heal and restore itself.

Food and Drinks

What you eat during the day has as effect on your ability to sleep. Caffeine is good when you wake up as it helps you wake up and keep you alert however too much caffeine during the date especially late in the day will affect your sleeping rhythm.

Spicy meals, large meals, greasy on heavy meals will keep your digestive system busy when it should be resting and you should. Avoid heavy meals at night especially because it can cause heartburn and discomfort which can affect your sleep.

Water is good but too much of it before you sleep will mean you need to wake up to use the bathroom and this can interrupt your sleep pattern regardless of how many lights you dim. It is good to have some water by your bed side because you may wake up thirsty and have to walk all the way to the fridge – a glass of water should do just fine.

Develop a Routine

Having a route will help you sleep better and rest well because you ease your body and mind into a restful state. As we already know your body has a natural rhythm and we are simply working with that rhythm so that the flow of waking and sleeping is easier and unaided.

Routines will differ from person to person and will depend on responsibilities, habits and preferences. An ideal routine will take into account what has been mentioned above however let us provide a simple example.

Recommended sleep time is important and varies by age but for the purpose of this example, let’s say you need to sleep eight hours per night. What will your routine be like. If you need to be awake by 5am, it means you need to be asleep by 9pm so your routine could be to have dinner between 6pm and 7pm, and perhaps one episode of your current Netflix show – I know it is hard to resist sometimes.

Make sure the temperature in the bedroom is adequate; around room temperature should work. You can have a warm bath which will help regulate your body temperature and help relax your muscles.

Dim the lights, play a podcast, or some white noise, or music without words (I prefer classical music or Jazz) with the volume low, and fall asleep.

A lot can happen between dinner and bed time however what was mentioned above is an example of how you can prepare and ease your body into sleeping naturally.

Bedroom Setup and Environment

Your bedroom setup does have an effect on your ability to sleep properly. Your bedroom should be associated with sleeping in the same way your kitchen is associated with cooking and eating. Here are a few tips to consider.

Lighting

Keep the lighting in the room low when you are getting into the pre-sleep routine. This includes light from TV (which ideally should not be in your bedroom), tablet, smart devices and the likes.

Temperature

Maintain room temperature in your bedroom so that is comfortable and you can sleep without the need to keep it extra cool or hot. People are different and I know some people sleep better when it is cooler while other people sleep better when it is warmer. Room temperature should allow you to strike a balance and complete the rest with a light cover or heavy duvet depending on what works best for you.

Noise

Try to keep the noise down where possible. This includes the audio book or music you may have playing to aid your sleep. If you have noisy neighbours or have your bedroom near a window close to a road or if you have a fan on, be careful of the noise reduction measure you adapt.

Some sources suggest you use ear plugs to keep the noise out however there are some noises you want to hear whilst you are sleeping. If your smoke alarm goes off, you definitely want to hear that. I would also imagine you would also like to hear your phone alarm go off when it does.

There are other ways to keep the noise out while you do not compromise in your safety or you turning up late to work.

New Equipment

If you are unable to get a good nights rest outside of any health issues, you may need to get a new mattress, bed or duvet. We spend a large portion of our lives sleeping in bed so having a good bed is necessary for a good night’s rest. There are many ways in which you can choose a good mattress and bed so take your time, test it properly with your partner too.

What to Consider if you cannot Sleep

There could be different reasons why you are not able to sleep or rest well even after you have slept. If you have a cold, a blocked nose or cough for example, it is not difficult to see how that keep you awake or affect the quality of your sleep.

It is important to seek medical advice if you are unable to sleep and if it is not due to a cold. There could be underlying medical conditions or sleep habits that could be the cause and your medical adviser can prescribe a course of action to follow.

Keeping a sleep diary can help where the underlying issue is not medical. Ideally you want to capture the conditions in the room before you slept and see if there is pattern for what works and what did not.

Some things to note in the diary include what time you went to bed, how many times you woke in between, how much noise was present at the time of sleeping and what time you woke.

Final Note

Sleeping is an important aspect of our lives and if you desire to be successful, your health cannot be neglected. There is a distinction between laying in a bed for eight hours overnight and actually sleeping – getting some good rest.

In the absence of an underlying health issue for which you should seek medical advice, there are number of things you should do to get the most of out of your sleeping time.

Working with your body’s natural internal clock is one way to get into the flow of sleeping and waking up. What you eat during the day and before bed has an effect on your body’s ability to prepare for sleep by the release of melatonin which is the sleep hormone.

Maintaining an active lifestyle has many benefits including your ability to sleep better. A daily routine that helps you sleep at the same time each night will help your body develop a rhythm.

Avoiding too much exposure to light from smart devices, having a warm bath helps relaxes the muscles and calms the mind. A good mattress, pillows, adequate room temperate, light and noise levels all help in enhancing the quality of your sleep. Good night.

Impact Investing

Invest Better

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29 March 2021

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One thing you will come to realise about investing is that there are a number of ‘themes’ or approaches to investing and while the end goal is the same which is financial benefit in its simplest form, it also presents a way for an investor to stay true to their convictions through what they invest in.

What is Impact Investing

Impact investing can be described as putting financial resources in companies that have a social mandate; for example companies that are involved in industries that improve the human condition.

The aim of impact investing is to use the money or any investment capital in such a way that there are positive social outcomes for people and the environment. Impact investors will place their capital in businesses such as non profits, renewable energy, basic services such as housing, education, sustainable agriculture or microfinance.

Some well known investors choose not to invest in companies that engage in military activities and in some cases this distinction is not clear because companies like Boeing and General Electric are involved in commercial and military spaces. In some other cases they choose not to invest in Tobacco or Cigarette companies not because it is going out of fashion but because of the harm it causes to customers who use their products.

What are the Returns

Impact investing is a growing industry and is still growing. By some estimates, the size of the market is $715 billion and is projected to grow. See more details here.

Investing for the benefit of people does not diminish the need for a financial return. Impact investing also takes the social impact into consideration. Rather than simply looking at how the EBIDTA, ROI, ROE or any other metrics, impact investments will also look at metrics that will determine how ‘impactful’ the investments have been over a period of time.

A large number of companies are committed in one form or the other to socially responsible practices and as a result the investors benefit. A study by GIIN shows that over 90% of impact investors saw their investment surpass their projections.

This trend is likely to continue for the foreseeable future as Millennials and other younger generation are more socially aware of issues and look for a way to give back or support the relevant companies in this space. As more individuals realise the positive outcome of impact investing on the environment, people and their wallets, these investments are likely to grow.

Why consider impactful investing?

There are a number of ways to approach this and a myriad of answers however the simplest is often the best.

Growing inequality is becoming a problem in the developed world and globalisation, movement across borders, lack of access to basic amenities, we see an increase this inequality to grow.

A lack of access to food, education, health facilities among other things can mean families around the world are living on the bare minimum and as the rest of the world advances, these people are left behind.

In developed economies, this problem of inequality exists. While most people will have access to health facilities, food in most cases and education, the emphasis here is on the quality of the services they get, the opportunities that are available to them and how they take advantage of them.

One way to fight inequality with money and still see a non-monetary return on the investment is through impact investing. By investing in companies in these space, you have better insight into the company, its books, the managers, how they allocate resources, what their focus is and other aspects of the company.

Pension Funds, Bank, Wealth managers and Financial Advisors can provide opportunities to their clients that will allow them to invest in companies that have a positive social impact.

South East Asia and India in the last decade have seen large investments in the impact investing; according to McKinsey, over $1 billion dollars has already been invested in India as of 2016 while South East Asia between 2007 and 2017 has seen $904 million from Private Impact Investors and over $11 from Development Finance Institutions. More details can be found here.

Who is in the Space?

Right now a number of companies are making investments and there are no restrictions to who can be involved. Religious, Non-Governmental Organisations, (NGOs), Family offices, Private Foundations or even individual investors are investing in this space.

The Catholic Church has seen an increased interest in impact investing and other development finance institutions such as the Norwegian Norfund, British Commonwealth Development Corporation can be considered as impact investors since a portion of their portfolio is allocated to investments that have positive environmental, social and financial gains.

Historically, impact investing could be accomplished through a number of mechanisms in place for institutional investors however, for individual investors there are a number of ways to participate in these ventures. ETFs (Exchange Traded Funds) such as SPDR Gender Diversity ETF or iShares MSCI ACWUI Low Carbon Target ETF can be publicly traded and offer an opportunity to invest.

How is it different from SRI

Socially Responsible Investing primarily looks investing in companies or investments that have positive social impact and avoid harm – it is also called Green Investing. Investors in SRI do so with the view that Human Rights are not violated, the environment is preserved and the customers benefit from the produce. SRI can be viewed as a subset of Impact Investing.

Final Note

Impact investing allows investors to put capital in companies that are positively impacting the lives of people. These could be companies in microfinance, agriculture, healthcare or education sectors and the focus for the impact investor is not just financial returns but positive social and environmental impact.

As more investors become socially aware of the issues around how Business is done, we see an increase in impact investments. It provides an opportunity for investors to be more conscious into what they are investing in and what the social benefits are, rather than financial benefits only.

Active vs Passive Investing

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22 March 2021

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One of the more interesting topics on the market has been which investment style generates the best market return over time. You may not be interested in any debates or taking sides (after all you care about your portfolio and how it performs). It is however important to understand where these styles differ, what the underlying philosophies are and what style you may prefer as an investor.

We have covered active investing here and passive investing here in some detail and in those articles we covered the advantages of one style with examples of active and passive investing.

Starting with those articles let us consider passive and active investment and how they compare.

Active Investing

An active investment strategy aims to outperform the market index or benchmark by applying information gained from research, analyse the market to find opportunities such stock that are thought to be undervalued and selling any underperforming positions in the funds.

The active fund managers will carry out this research and execute the orders and you can find our article on this topic here.

Passive Investing

The goal of a passive investment strategy is to closely match the return of an index or benchmark and as a result, a fund manager is not required to manage the buying or selling of securities. You can read more in-depth details here regarding what a Passive Investing is and how it works.

How they compare

Active Investing		Passive Investing
Believes the markets are inefficient and investor behave in an irrational manner thereby creating inefficiencies that can be exploited.	Core Belief	Believes in the market is efficient and that inefficiencies are already priced in.
Adopts a strategy to beat the market by picking stocks that will help reach this goal.	Strategy	Aims to be get a market return through buying and holding index trackers, ETFs or other tracker funds.
There is little diversification in the active funds and a significant effort is put in picking the right stock. Sudden market events can lead to higher volatility and the inability to exit a position.	Risk	The passive funds are more diverse and many of them such as ETFs can be traded on an Exchange. Liquidity is less of an issue and the impact of a market volatility is less compared with an active fund.
Costs are higher in an active fund. Paying the manager for managing the Fund, research costs, transaction costs when entering and exiting positions in a short period of time. All these costs add up.	Costs	Costs are very low compared with an active fund and since the position is held for a longer time frame, there is less selling or buying transaction cost, no cost incurred by paying for research on the companies being tracked.
Many active fund managers fail to beat the market and this is a trend that has been seen for the past few years.	Performance	Passive funds with their lower costs, better diversification outperform active fund managers.

What Style should you Adopt

As investor you will have different approaches to investing however the aim is the same; to see your investments grow, take advantage of new opportunities while keeping any associated costs low, having a good level of diversification and a good night’s rest.

Based on what has been discussed, it appears the way to go about it is to adopt a strategy that gives the best of both an active and passive investment strategy. The aim here is to benefit from the benefits of one technique whilst avoiding the disadvantages.

In a situation where there is volatility in the market due to a trade war, a Covid-19 prolonged impact on the economy, Tesla buying a large amount of Bitcoin or Reddit users taking on Wallstreet, you should find avenues to hedge your positions and minimise any downside risks.

Consider an examples where you have an ETF that tracks tech stocks – the ETF is heavily weighted towards the FAANG (Facebook, Apple, Amazon, Netflix and Google) stocks.

Now you discover through research that Netflix has seen a surge in subscribers for various reasons. Whilst you enjoy the benefits in your ETF, you can also choose to purchase shares in Netflix.

Remember this is one basic scenario and there many others where other asset classes like options or even Forex can be used to hedge, diversify and minimize the risk of loss to your positions.

Final Note

There are benefits on both side of the arguments however the data speaks for itself. The data has showing a large inflow of money into more passive funds whilst active fund and their managers have failed to beat the market in majority of the cases. Those numbers has not improved over time and there has been significant outflows from active funds.

Passive investors may be missing out on opportunities to otherwise increase their returns and rather than stick with the market performance, they could be in a position to beat the market.

Active investors on the other hand are likely to spend resources looking at the next big stock, asset class or trend and the short term prices inefficiencies are created a capitalise on them. Realising opportunities and trends requires time, effort and money and all these are costs.

As an investor it is necessary to look at the potential benefits of each strategy and apply them accordingly. In some scenarios such as investing in emerging markets, one style may be preferably for cost reasons, market transparency, etc. In other situations, some asset classes may yield opportunities to invest without too much overhead.

Passive Investing

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15 March 2021

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As new investor, you may not have much free time to dig into a company’s earnings to see how they have performed over the last quarter and what the future holds. You also may not have robust risk management place to deal with sudden movements in the market across asset classes.

One investing strategy you can apply here is a passive investing strategy. Passive investing has gained more traction over the past few years as financial instruments such as ETFs and Index fund have allowed less sophisticated investors.

What is Passive Investing

Passive investing generally refers to buying and holding assets over a long period of time with little trading in the market during that time. Trading in this sense means you hold that position and where the opportunity to buy more of the asset comes up, you do so.

An example of passive investing is a when an individual purchases an Index Fund or an Exchange Traded Fund (ETF) after doing research (one would hope) and hold that investment for a long period of time.

A long period of time is relative to the investors but with Passive investing you are looking at between three years and ten years if not longer. The aim here is to minimise the transaction costs associated with buying and selling on your portolio return.

A passive investor is someone who buys a security with the intent on holding it for a long period of time as opposed to an active investor who would get in and out of multiple trading positions in a shorter period of time. A passive investor does not try to time the market or make any decisions based on short terms price movements in the market or asset classes.

What is the Best Passive Investment

With passive investments the aim is to reduce cost, reduce fees while you see more transparency, tax benefits and simplicity.

The most common asset classes for Passive Investors from a stock market point of view are Index Funds and ETFs. Passive investing as a whole can include real estate, dividend paying stocks and other activities however we are looking at this from a stock market point of view.

Investing in a Fund or ETF that tracks the market is one of the best ways to benefit from the performance of the companies that constitute that index or fund without having to do much research into the individual companies or pay fees for trading the shares in either one of the individual companies.

ETFs are Exchange Traded Funds that track certain markets or are made up of different stocks with different weightings allowing you to benefit from the performance of those companies.

Benefits of Passive Investing

Passive investing has a number of benefits hence its appeal to many investors how have chosen to adopt that method. Let us consider these benefits in more detail.

Low Fees

This is arguably one of the main appeal of passive investing from a stock market point of view. Each time you buy or sell, your order needs to be executed and whoever executes that order on your behalf for example your broker, will charge you fees and even if they do not charge for executing your orders, there are other fees involved.

With passive investing you are not looking at the earnings report of hundreds of companies, you are not paying for research and all these costs add up and affect your returns. This link has details of what Active Investing is and the associated costs.

Tax Efficient

Passive investing is more tax efficient than active investing because of capital gain tax which is that tax you pay on your earnings. If you have not sold your position, you have not realised your earning and thereby exempt from Capital Gains Tax. There are other tax effective benefits of passive investing.

Simplicity and Clarity

As a passive investor when you invest in an Index Fund or ETF, it is easy to see what companies are being tracked and what the weighting is. The assets in the fund are visible and can be seen at any time.

You will not need to carry out research on all the companies in the fund and there is no need to constantly research and adjust your holdings of a particular stock or asset.

Lower Risk

Passive investment where the investment is made in some sort of tracker fund or ETFs are considered to be lower risk compared to active investing due to the diverse nature of the fund. If you invested a 100% of your portfolio in a number of tech stocks, the risk is higher due to the fact that these companies can go bust or be subject to price fluctuations in a short space of time.

With a Fund, there a numerous companies being tracked if not hundreds of companies and although we never say never, the chances of those companies going bust at the same time or many of them being subject to price fluctuations in a short space of time is a lot less.

Cost

The cost of a single share in Apple, Amazon, Netflix, Facebook and Google to name a few is high especially for a new investor and any movement in the price can have real impact on the overall portfolio.

However if you bought an ETF that tracked Tech stocks above, you will pay a considerably less amount of money to own that and have the opportunity to benefit from the performance of those stocks.

Disadvantages of Passive Investing

There are a number of drawbacks with Passive investing and here are the most common.

Lesser Returns

With passive investing you are likely to get a lower return compared with an active trading strategy because although you survive volatility in the market, the low risk nature of investing in Funds also means lower rewards.

Sometimes a single stock in an index can produce a higher return than the whole index and a passive investment strategy will miss out on that opportunity.

As a passive investor in an Index that tracks the market, you are the market in some way and active investors are looking to beat the performance of that index so your performance in a sense is the market performance.

Not Dynamic

Unlike active investors who can react when there is an event in the market to minimise their risk or take advantage of a new opportunity, Passive investors do not have that liberty.

If a particular stock in the benchmark will not perform well, the index fund manager cannot sell that particular stock or remove it from the index in such a way that it does not affect performance. You pretty much live and die by the Index.

Example of Passive Investing

Putting it all together, let us consider this example. I am a passive investor with a certain amount of money and in true passive investments style, I have purchased a number of Funds.

Based on research and where I think the market is headed, I have allocated my portfolio in the following way.

25% in a Crypto ETF BLOK. Click the Link for the chart.
25% in QQQ an ETF that tracks the S&P 500. Click the Link for the chart.
25% in a Marijuana ETF. Click the Link for the chart.
25% in a fund that tracks the S&P 500. Click the Link for chart.

I buy and hold these positions until I choose to sell them, hopefully many years after I have bought them. Worth nothing in the example above I have allocated 100% of my portfolio equally across four financial instruments.

Now let’s say Cryptocurrencies and Marijuana (interesting combination there) are gaining traction, becoming widely accepted, and all the good stuff. I should see my position or investment go up in value as more companies invest in this as policies that are friendly to these causes are enacted.

In a situation where policies change, or Cryptocurrencies are outlawed and marijuana is considered taboo, the market will react in a negative way most likely and the value of my investments will fall.

As a passive investor, I am have those positions and the only way out is to sell them (this is not strictly true and there are ways to hedge but for the purpose of this example it is true) or wait for the situation to change in such a way that the prices start gaining – perhaps the law makers realise they were wrong and we all fall in love again with cryptos and marijuana.

Final Note

Passive investing is an investment strategy that suits the investor who wants to save time, save money and their blood pressure in some cases so they are not constantly looking at the market to see how particular companies are performing.

Whilst you will save money in terms of transaction costs, research fees and capital gains tax, as a passive investor you may not enjoy the full benefit the market has to offer especially in situations where a new opportunity reveals itself.

You will however enjoy the benefit and relative safety from diversification because of the financial instruments you purchase and how they are structured to track an Index or a number of companies in a particular sector or region.

Passive investments like active investments have their benefits and draw backs and in many cases it is better to adopt a strategy that applies both.