The Rules for Successful Passive Index Investing

When you are deciding how to invest your money, there are many different options to learn about. And as with any investment, you are wise to take the time to do some research and determine which strategy is the best match for your investment goals and budget. In many cases, the amount of money that you have to invest and the fee structure can be a big determining factor.

One option that you will want to check out is passive index investing. As the name indicates, this is a management style that aims to increase the investor’s returns over a long time period by keeping the number of transactions limited.

Limiting the buying and sell also eliminates many of the fees and also stabilizes the performance. Constant buying and selling tends to cause a great deal of fluctuation in value as well. Following this method of investing as well as a few other tips can be a great plan for long term investment success.

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Anyone Can Participate

One of most important keys to this method of investing is that just about anyone can participate. Index funds are available in a wide variety of markets from conservative fixed income to emerging markets small cap stocks. There are also options in real estate, commodities and bonds. What this means is that there are indexes out there in all price ranges and in a wide array of markets so anyone can begin investing in a lower cost option. And that helps to meet one of the first rules for successful investing, you need to get involved early. You might not have a lot of money to invest but with this method you can get in early on just a small investment and begin to grow your wealth.

Make Sure You Don’t Overpay for Fees

Another great aspect of passive index investing is that the fee structure is normally very low and affordable. When it comes to investing there are not a lot of aspects that an investor can control but fees are one of them. So don’t just jump into the first index fund that you find that will accept a small investment amount. Invest some time to save a lot of money in the long run and find a fund with affordable and fair fees. Studies have proven that low cost funds tend to deliver above average performance. And this is very easy to understand when you know that every dollar that you pay for management service is a dollar that is directly reducing your returns.


Long term success of any investment relies heavily on diversification. Passive funds, as a rule, hold a more diversified selection of securities. The idea behind diversification is that a wide base of investments insulates the overall fund from suffering if a single security or even a single economic sector declines dramatically. You can take this one step further by investing in a few different index funds. You will want to pay attention to the makeup of each fund to be certain that you have a varied content.

Remain Disciplined

When you embark on passive index investing, you need to understand that this is a long term investment plan. And also that it truly is a passive plan. You must be willing to sit back and ride out the investment that you have made. If you try to buy and sell to improve your short term stance then you are essentially eliminating your potential for long term success. This is not a hands on, glamourous investment where you can study the market and make a quick move that will score you a huge payday. The entire challenge of this type of investing is learning to watch but not change your stance. But you will get two rewards from your decision to make this type of investment. The first is of course the money and the growth that you will achieve over the long term. The second is in the reduction of your stress level on a daily basis. Most investors that you talk to are stressed each day about what their investments are doing and if they should buy or sell. And sometimes they worry all day and never even make a move. You on the other hand will relax and know that where the big picture is concerned, you don’t need to worry about today or any day. The only day that really matters is the day you decide to cash out.

Listen to Professionals

When you are investing in a passive index, your decisions and research are limited to the early period of your investment. You are not going to be buying and selling due to the nature of the investment. But it is critical that you make your initial investment decision count. You want to know as much as you can about what you are buying and what securities make up the index. If you are inclined to be hands on then you can begin your own research to ferret out the index that you feel is right for you. But don’t be too proud or too arrogant to listen to a professional. You go to a doctor when you are sick and you take your car to a mechanic when it is not running properly so apply that same logic to your investing. Especially when you are just beginning to invest and you are working with limited resources, the advice of a professional is important. Getting off on the right foot with your investing could be what allows you to retire early, pay for a great college for your children or just relax and live without the stress of financial worries. So do some discovery on different options but then sit down and talk to your investment professional. Be sure that you are investing in a fund that will reward you for years of loyalty and patience. Let passive index investing and your investment professional help you to grow the wealth that you deserve.

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