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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

Do you think bonds are old hat? Do you fear a bond crash? Then read this riposte.

Vanguard LifeStrategy funds review

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

How to build an FI plan that copes with bill shock.

Irish ETFs are issued to UK investors as CDIs, post-Brexit. What on Earth does that mean?

The Accumulator’s seven year FIRE journey condensed into seven minutes (ish).

If the movie Contagion contained a scene showing the hero’s passive portfolio, then it didn’t look like this.

Fair enough, I haven’t prepared the stables for the Four Horsemen Of The Apocalypse.

In which the sleepy Accumulator dares to sex up his decumulation strategy…

Decumulation: a real life plan

The increasingly misnamed Accumulator reveals his decumulation plan.

An introduction to our fantastic online broker comparison table.

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

Calculate your personal inflation rate to stop the money monster eating your wealth.

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

Can you position your portfolio to surf the waves of geopolitical, technological, and economic change? Here’s what you should know before you try…

The Brexit trade deal, vaccines, and Joe Biden in the White House are all good for the pound but what about your portfolio?

Our model passive portfolio emerges from the rubble of 2020 thanks to a hard hat made of QE.