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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

Is the 60/40 portfolio dying? No, but it is feeling peaky.

Portfolio (basket) case study

A case study in what can happen when your portfolio is constructed from newspaper and wealthlist recommendations.

Mr Market cuts us with his eyes this quarter. Ouch.

The Accumulator confesses to his greatest investing fails.

Spend the day locked in the office dealing with BS? Or out on a bike riding in the sunshine? FIRE gives you the power to decide…

Which portfolio tracking tool to use

An easy-to-use portfolio tracking tool for the spreadsheet hesitant.

How to read a bond fund webpage

How to identify and understand the key info on a bond fund’s webpage.

Compare funds: what to look for

Here’s how The Accumulator compares funds and ETFs.

Fund names explained

Make searching for index funds faster and easier by cracking the clues in the name.

SIPP money saving hack

Save up to 82% on your fees using this SIPP money saving hack

What do the 10-year returns of the Vanguard LifeStrategy funds tell us about passive investing?

We love a rule-of-thumb. It helps you feel like you’re in control. The reality is far different of course…

Grab your oxygen tank, we’re taking a deep dive into the best Emerging Market bond index trackers

Emerging Market bond risks

Emerging Market bonds have outperformed Emerging Market equities for the last 25 years. Can it last?

Emerging Market bonds can improve your portfolio’s risk-adjusted returns. Should they replace Emerging Market equity in your portfolio?

Our model passive portfolio enjoys a market melt-up.