Why I Like Passive Investments

What is a passive investment?  Well, lets take a look at the the dictionary definition of passive investment. 

Investopedia says:

An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance.

Basically, passive investments are investments that have characterisitics that allow you to buy one time and watch it grow over time all by itself.  Characteristics such as dividends, interest, compounding and growth are what make these investments very appealing.  Compounding is a wonderful growth technique.  Stocks that have great long term growth prospects as well as a handsome dividend can create wonderful long term value through compounding.

That is where we get those charts you see all the time that say, if you invested $1,000 in Coca-Cola (KO) in 1970 it would be worth more than xx amount today.  The reason is compounding.  This is why I really like passive investments.

A passive investment can be boring also, but if you really think about it, how boring is it to watch money automatically grow.  It is not boring at all in my opinion.  It is all in how you look at it.  The very idea that $1,000 dollars invested now can be worth $1,000,000 in many years from now on it’s own is absolutely amazing.

It is possible to invest $1000 right now for each one of my kids and set it up in a trust so that they would not be able to touch the money until they were 65.  If invested right, when they both retired they would have millions.  Maybe even more.  Of course I want to teach them both how to do that on their own, so they can learn discipline.

With today’s failing economy and the uncertainty of social security tells me that people need to be more in tune with investing on their own.  401k’s are a great passive investment but they are limited in array of investments they offer.  The only thing that makes them appealing in my opinion is the employer match.  Some companies offer better matches than others.

Passive investments are a great idea.  I find it fun to write about them because I don’t trust our government in doing the right thing and it keeps me motivated to invest in general.  Not to mention people should be informed and need to take charge of their own finances.  It is not only good for themselves, but great for their families as well.

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