Passive investments are a great way to generate additional income without much effort. They also have several advantages, including the fact that they do not require active management and can be easily set up. In this article, you will learn how to make a investment passive so that you can take full advantage of all the benefits it offers.

What is a passive investment?

A passive investment is a type of investment where the primary objective is to generate returns, rather than to outperform the market. Investors who take a passive approach are simply looking for the best possible performance based on the risk they are willing to accept. The main difference between the active and the passive approach is therefore the philosophy: in order to gain in scholarshipShould you try to beat the market or just live with its performance? This section will give you a better understanding of what passive investing is, as well as its advantages over other types of active investments.

The benefits of a passive investment

A passive investment is an investment in a business or financial institution that does not require any active involvement by the owner. The most important advantages of a passive investment are its simplicity and its high return potential.

Passive investing can be very profitable, as you can take advantage of rising stock markets without taking too much risk. In addition, it allows investors to focus on their core business and spend less time managing their investments.

The benefits of a passive investment

Passive investing is a strategy that consists of investing in assets whose performance does not require active management. This approach has several advantages, including cost and time. In this section, we will explore the various benefits of passive investing.

Why invest passively?

The advantages of a passive investment are multiple.

First of all, it allows to reduce considerably the management fees. Indeed, there is no manager to pay since the portfolio is managed by computers according to a predefined strategy.

Moreover, a passive investment follows its plan rigorously and leaves no room for emotions or human errors that a human being might make in the course of his or her professional life (such as selling in times of crisis).

Finally, this type of investment can be very profitable if the initial investments are well chosen because, thanks to the law of diminishing returns, one will need less of the investment to earn more than before: "when the income generated by the asset is reinvested over a long period of time, each newly invested euro will always produce less than the previous one, but where the cumulative effect takes on its full meaning is when the initial capital reaches a sufficient size to passively generate significant gains without any additional effort.

How to make a passive investment

There are different ways to invest passively. One of the most common is to invest in mutual funds, but there are also other options such as real estate or RRSPs. Each of these approaches has its own advantages and disadvantages, which we'll examine in detail here.

The different ways to invest passively

There are several ways to invest passively. The first is REITs, or "publicly traded real estate funds. These companies invest in commercial and residential real estate and their shares trade like a common stock on the financial markets. REITs generally have a high yield, which makes them an attractive option for passive investors.

Another way to invest passively is to purchase units of mutual funds (FCP). A mutual fund is a gold pooled pool of assets that is actively managed by a manager designated by the SEC regulatory compliance in the United States; in Canada, there are various agencies including the Investment Industry Regulatory Organization of Canada (IIROC). By purchasing units of the mutual fund, you will acquire a small proportionate interest in any stocks or bonds included in the mutual fund's portfolio.

Advantages and disadvantages of passive investment

The advantages of passive investing are numerous. Indeed, this method allows you to obtain high returns without taking too much risk. Moreover, it is easy to set up and inexpensive. The disadvantages of passive investing are fewer. However, it should be noted that this type of investment requires a particular discipline and a regular follow-up.