How to Start Passively Investing for Retirement
Retire Guides Blog
When it comes to Dallas Retirement Planning, investment management strategies can be better understood by categorizing them as either Passive Investing or Active Investing. While these investment strategies are not mutually exclusive from each other, it is important that our clients understand the difference so that they can make smart investment and financial decisions as they journey toward their retirement destination.
Dallas Retirement Planning 101: Active vs Passive Investing
As a start, financial planning advisors usually distinguish active investing and passive investing as a strategy through the frequency of buying and selling done by the investor. Passive Investing is usually associated with buy-and-hold strategies or buying into securities such as stock, mutual funds, or indexes and holding on to them for a long time while waiting for them to appreciate. On the other hand, Active Investing is associated with market timing strategies or ‘buying low and selling high.’ While the goal is the same for passive investing (to buy low and to sell high), the time horizon in active investing is shorter and the buying and selling more frequent. You can read more about active and passive investing in this guide prepared by our Dallas retirement planning experts.
Passive Investing for Dallas Retirement Planning
Here in Retire Guides, we recognize that personal circumstances like retirement goals differ from person to person. We understand that some—while staying committed to their retirement goals by saving regularly for investing—may not have the spare time or willingness to commit to an active investing strategy. In these cases, our Dallas Retirement Planning will be based around passive investing. Our retirement financial advisor will craft a customized retirement plan employing passive investing that they can easily follow to get started.
Set Aside Money Regularly for Passive Investing
Having enough savings is the number one prerequisite to retirement investing. You can have perfect knowledge or all the right ideas about investing but they cannot be implemented without having enough capital. Save regularly until it becomes a habit.
Passive Investing through Dollar-Cost Averaging
One of the weaknesses of buy-and-hold strategies is buying at the highs. This also applies to active investing but active investors usually implement cut loss strategies to mitigate this risk. Passive investors can implement dollar-cost averaging (DCA). DCA is a strategy of buying securities with the same dollar amount at regular intervals. For example, you are implementing a passive investing strategy by buying stock X once a year with a budget of 1,200 dollars. You can minimize the risk of buying at the highs by splitting your budget and buying at regular intervals (e.g. buying 100 dollars’ worth of stock X every end of month). The buying pattern of DCA may make it seem like an active investing but you have to remember that you are buying without regard for the stock price. Your goal is to buy regularly with a fixed amount of dollars. With this strategy you buy more of a stock when it is cheap and buy less when it is expensive. Additionally, an added bonus of employing DCA is it pairs well with the habit of saving regularly.
Passing Investing Requires Time in the Market
Passive investing when done properly (i.e. investing in the right companies that have shown slow yet reliable growth, investing regularly through DCA) can be very rewarding but it takes time. The ‘hold’ part of buy and hold requires time in the market for it to bear fruit.
Start Your Dallas Retirement Planning with Retire Guides
Our commitment here in Retire Guides is to make retirement living achievable for the average American through sound financial planning and retirement investing. We aim to do this by providing retirement plans that are customized to our clients’ unique goals. Schedule a consultation now and let’s journey together towards your dream retirement.