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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

Diversification

Asset allocation – doing it yourself

Model portfolios: Ideas for passive portfolios

How to buy your first index trackers

Cutting costs

The simplest solution of all

Planning

How to buy low and sell high – rebalancing

Resources

Building your own passive portfolio? Here’s how to decide whether to use ETFs or index funds at every stage.

How long does it take to recover your losses from a bear market? Longer than we’d like

Where to find and how to use global CAPE data

An introduction to our fantastic online broker comparison table.

Best multi-asset funds

Which is the best fund-of-funds for passive investors?

A choice of cheap index trackers to help passive investors craft their portfolios

Inflation fears roundhouse every holding in the Slow & Steady portfolio

How to deal with the savagery of a wild bear market

Here’s another naughty broker cost that wants slashing

Vanguard LifeStrategy funds review

An instant diversified portfolio that requires less maintenance than an Easter Island statue.

How do accumulation funds work?

Accumulation fund investors generally have no idea how much they’ve earned in dividends. But discovering this hidden flow of cash is easy…

A quick confusion-buster on the difference between income units and accumulation units and which you should use.

Why take 45 index trackers into the investing shower when one will do. (Ah, but which one?)

Runaway inflation is one of the biggest threats an investor faces. Enter our definitive guide to fighting it

Once more the contrast between my daily diet of media-amplified fear and the damage done to our Slow & Steady passive portfolio surprises me. The portfolio is down just 3.5% since its peak last quarter. Essentially, we’re back where we were six months ago.  That’s despite the arrow-headed threats of stagflation, economic crisis, and a [...]

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