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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

An introduction to our fantastic online broker comparison table.

Stress management

Keeping our monkey brains in check isn’t easy at the best to times. It’s even harder when you invest…

How to track your annualised returns plus Slow & Steady portfolio tracker freebie.

The facts of investing life

Skill might let you play in the deep end of the pool, but knowledge enables you to stay safe in the shallows.

Put on your scrubs as we surgically remove another cost with the cold-precision of a high-functioning sociopath.

A pension transfer can save you a lot of money but it also seems like an enormous faff. Inertia begone with this deep dive into how to transfer with confidence.

Our portfolio inched ahead again in Q3…

Low-cost index trackers that will save you money

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

The last instalment of our epic ISA / SIPP FI series looks at when you should use cash to bridge the gap to your pension.

I hit my FI number

The Accumulator enters the promised land after many years of wandering the desert. But does he really like milk and honey?

The cautionary tale

Getting rich doesn’t help if you can’t hang on to it.

Mobile trading apps are on the rise. Here’s how to run a good passive investing strategy on Freetrade using ETFs.

Is there any point in bonds any more, when you can get a higher rate of interest from a savings account?

Let’s scare ourselves stupid by watching the horrorshow that was the 1972-1974 UK stock market crash.

The market recovery is looking suspiciously V shaped. Can it possibly be true. Or will it soon turn into a W?

Negative yields, eh? That sounds a bit negative. Or even completely radioactive. So just how bad are these negative yielding bonds? Let’s find out.