Passive investing is for smart savers (that’s you!) who want to take the next step in protecting and growing your money.
Taking a passive approach to investing refers to buying securities or financial assets (big words to describe things you can invest in) and holding them for the long term (at least 10 years or preferably longer) to make money from the investments.
Unlike active investors, passive investors do not attempt to profit from short-term movements in the market.
Basically, passive investing is for people who do not like or want to spend all their time investing but still look forward to growing their money over time.
Passive investing is commonly referred to as a “buy & hold” strategy, but, there is slightly more to it than buying & holding onto the investments indefinitely. However, it is not as complex or difficult as you might think.
While financial institutions and money regulators do not necessarily make it easy, it does not mean it cannot be made simple. After all, anything is simple once you know how.
And, you have come to the right place to learn how.
SimplePassiveInvesting.com was created to fill a void in the teaching of basic knowledge on how to start investing as well as build a passive investment portfolio in Singapore.
The website shares fundamental how-to information, strategies and tactics on passive investing in a direct down-to-earth style that is clear, simply and easy to understand.
No complications. No jargon. No confusion.
For the purposes of SimplePassiveInvesting.com, we will be focusing on investing in financial assets and not real estate or businesses.
As defined by Investopedia, an asset is “a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.”
In investing, a financial asset refers specifically to an asset that has been securitized. “Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security.”
A financial asset is a non-physical or intangible asset.
The value of a financial asset is not inherent. Its value is represented by a real or virtual (online) document that states the agreed value of the asset.
You might be thinking, isn’t cash (money) a tangible asset since you can feel, hold and touch it? It is not considered a tangible asset because money, unlike gold or land, does not derive its value from the paper it is printed on. Its value is derived from the value assigned by the government or central bank that issues that money.
A $50 dollar note and a $2 note are printed on the same type of paper and would incur practically the same cost to print but the value attached to it note is different. Hence, money is a financial asset because its value is derived from a representative document – the printed piece of paper.
In investing terms, a financial asset can also be referred to as a security or paper asset* and financial assets are traded on financial markets.
Your goal is to build a portfolio of financial assets that is basically your collection of invested holdings.
*Note, in accounting terms, the definition of these terms can be slightly different. For example, a paper asset is one that is recognized on the balance sheet, but it is of no use to the company, nor can it be sold for financial gain. It is considered illiquid as it cannot be converted to cash easily. This is very different when we talk about paper assets in investing which are considered very liquid; i.e. can be sold for cash easily.
Sometimes you will also see the word financial instrument. This essentially refers to a financial asset. In investing terms, both terms are interchangeable.
However, it is useful to define financial instrument a bit more as it will conceptually help you to understand the different types of financial assets that you will ultimately invest in.
First of all, all financial instruments are financial assets. But different financial instruments are more complex than others. Complex financial instruments can be thought of as packages of individual financial assets.
For example, cash is a straightforward financial instrument as the value is represented by a printed piece of paper. The same goes for a stock or bond where the value is guaranteed by a printed or virtual (online) document.
A mutual fund or unit trust is an example of a more complicated financial instrument. A mutual fund is a financial instrument comprising of a basket of financial assets. It is made up of different individual stocks and bonds. But, as a collective whole, the mutual fund itself is considered a separate financial asset.
Think of it this way. Imagine you own a fruit store and sell apples, oranges and bananas. While you have only these three types of fruit, you can package them in such a way that you can sell multiple products.
For example, Product #1 is an apple, Product #2 is an orange and Product #3 is a banana. However, you create more products such as:
Product #4 – A package consisting of an apple and an orange.
Product #5 – A package consisting of an apple and a banana.
Product #6 – A package consisting of an orange and a banana.
Product #7 – A package consisting of an apple, an orange and a banana.
Each product is an asset by itself because you sell each product individually at a different price. However, Product #4, #5, #6 and #7 consists of the individual assets that make up Product #1, #2 and #3. This is what is known as underlying assets.
So, a mutual fund is a financial instrument with underlying assets that can comprise of other individual assets such as stocks and bonds. But, the mutual fund itself, as a collective, is considered a financial asset.
So, don’t worry if you do not know what are stocks, bonds and mutual funds at present. For now, just know that, as an investor:
You will be investing in financial assets also known as securities or paper assets.
All financial assets are financial instruments in some form.
Some financial instruments are more complex than others.
Explore and bookmark this website to learn how to invest passively for the long run the simple way.