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Passive Investment

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The passive investment is becoming more and more attractive for investors, they are increasingly doing without the actively managed variants. Active management is accompanied by constantly rising costs and only rarely leads to the desired success. This post describes the role of passive investing and introduces a world-renowned advocate.

The passive investment is still the great unknown here.

In the case of actively managed funds, a manager is responsible for performance. He is by no means passive, but tries to increase the return of the investment fund with a supposedly clever selection of individual stocks. With his fee, he helps ensure that the fund becomes a costly company regardless of its possible success. If the development is favorable, additional premiums are due, but fewer and fewer managers succeed in long-term success.

The reason: efficient markets no longer allow any information advantages for individuals. In view of the only average returns, more and more investors are turning away from the classic investment variant and favor passive investments.

How is passive investment defined?

First of all, it should be said that passive investing has little in common with doing nothing. To do this, investors choose an index fund and invest their capital broadly in an index. The passive investment gets its name from the procedure; With it, the investor does not rely on individual values, but on the development as a whole. The manager is replaced by a computer, and the replication of a certain index replaces the risky stock picking.

Here is a practical example:

Anyone who transfers the passive investment to the German stock index DAX invests in the overall development of all 30 groups represented in the index.

The comprehensive investment does not require the time-consuming selection of individual titles and therefore pleases with low costs.

The critics certainly object that this passive investment can never beat its reference index. But index funds never make exactly this promise, this announcement comes more from the world of actively managed investments and is being implemented there less and less.

Passive investment has prominent proponents

The best known among them is the star investor Warren Buffett. A look at his life shows that this personality has undergone a comprehensive change in views. At the beginning of his career, Buffett was precisely one of the market players who successfully pursued stock-picking with a lot of capital and inside information. He had great success with it for several decades, he became a billionaire and is now the third richest man in the world. And this legend has been calling for passive investment for some time and swears by broad diversification. He explains his change of heart to investors and heirs with scientifically proven arguments: Modern markets are increasingly efficient and no longer allow individual participants to have an information advantage. However, there is the possibility, through intelligent use of stocks outside of the indices, to exceed the returns of the indices, which by far the largest part of all active fund managers are not even exceeded due to excessive costs and incorrect assessments. Why then use this as a system at all? Goods buffet will have thought of its part. We would be happy to help you implement this knowledge for you.

Hello, I have been working as an investment consultant and author for more than 20 years. I love what I do and I have enriched everyone around me. A lot of money is not important, the main thing is how you use the money.

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