Lars Kroijer explains how to match your bond allocation to your time horizon, and considers what kind of returns you might enjoy. (Or not enjoy, these days…)
A guide to passive investing in the UK
Are you after an investment strategy that’s simple to understand, easy to implement, and gives you a good crack at beating the average fund manager over the long term?
Then passive investing could well be for you.
Welcome to our passive investing guide for UK investors. Our mission: to explain what you need to know about passive investing and how to do it.
Why passively invest?
With passive investing, you don’t worry about what the price of gold is doing this week. Nor do you spend days buried in company reports trying to evaluate stocks.
There’s no need to time the market, pick winning companies, or convince yourself that you have the special powers required to beat other investors – especially since the vast army of superbly equipped professionals you’re up against can’t reliably outperform, either.
As a passive investor, you refuse to play The City’s game.
Instead you use low-cost funds called index trackers to reap the market’s return and get rich slowly.
We’re fans of passive investing because:
- There’s a mountain of evidence showing passive investing is a superior strategy compared to believing the latest hot fund manager or investment scheme will smash the market.
- It can save you from costly mistakes in the pursuit of fatter returns.
- It’s as simple as investing gets. You need no more than half a dozen funds in a portfolio to spread your money across the key asset classes. You can even get by with just two funds.
Does this all sound too good to be true? Rest assured this isn’t some bizarre offshore saving scheme or whatnot.
Passive investing is increasingly the first choice of savvy investors, with net sales of tracker funds in the UK reaching a record £1.9 billion in 2011 according to figures recently cited by Which.
That brings the total held in tracker funds by UK investors to £39 billion!
The passive investing mindset
But passive investing isn’t just about the types of funds you buy. We think it’s also about how you approach the whole business of achieving your long-term financial goals.
By accepting that successful investing is a long-term pursuit, you mentally equip yourself to cope with the horrendous market crashes that will occur from time to time.
You also come to realise that a diversified portfolio is your best chance of reaching your goals.
Passive investing offers all this and it’s a strategy you can easily manage yourself for only a small investment in time. It enables you to sidestep the ruinous conflicts of interest that riddle the financial services industry, then leaves you to get on with the rest of your life.
Sure, passive investing requires some upfront research to understand. And that’s what the passive investing section of Monevator is dedicated to helping you with.
How passive investing works
- Five reasons while you’ll love index investing
- How to plan your passive investing strategy
- More about how index trackers work
- What passive investing can do for you
- The power of compound interest
- The high price of active management
- A quick introduction to diversification
- The only asset classes you need
- How different asset classes have performed in the UK
- How to invest in UK Government bonds
Asset allocation – doing it yourself
- Find the right asset allocation for you
- How to create your perfect asset allocation
- Estimating expected returns
- The different bond types explained
Model portfolios: Ideas for passive portfolios
- Different approaches to suit every taste
- The Monevator passive portfolio – updated quarterly
- The Pound Stretcher portfolio – for budget investors
- A retirement portfolio
How to buy your first index trackers
- Costs to watch out for
- The Ongoing Charge Figures (OCF) explained
- The UK’s cheapest index trackers
- Our online broker comparison table
- Calculating the cheapest platform for you
The simplest solution of all
- How to achieve financial independence
- Creating a retirement plan
- Stress test your plan with a Monte Carlo sim
- How slow growth affects your goals
- Reduce tax in retirement
- ISA vs SIPP – which is best?
How to buy low and sell high – rebalancing
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Want to listen to a smart discussion about passive investing? Try this interview with Michael Mauboussin, which heads entertainingly into the weeds…
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Has the world become too risky for passive investors with Donald Trump as president? Lars Kroijer says it’s more complicated than that…
We pop the bonnet on a couple of multi-factor ETFs that promise greater returns and diversification. What’s not to like? I’m sure we’ll find something…
The Slow & Steady passive portfolio leapt up by 25% in the last year. So if you’re a passive investor who stuck to your mechanical guns then you’re probably feeling a lot better off now than back in January 2016. At that point our psyches were screeching like fingernails down a blackboard as the major world equity markets slid into [...]
Fund ratings and Best Buy lists are biased against index funds, and are best ignored by passive investors.
UK inflation-linked gilt funds are full of long-dated bonds, potentially exposing you to far more risk than you realise.
Make searching for index funds faster and easier by cracking the clues in the name.
Our model portfolio soars once again and we scratch around looking for the cloud in the silver lining.
Accumulation fund investors generally have no idea how much they’ve earned in dividends. But discovering this hidden flow of cash is easy…
Rebalancing with new contributions is the best way for investors with small portfolios to hit their target asset-allocation without excessive cost.
Worried that a fast-rising market might cost you in the future? Here are some simple steps you can take to lower your risks.