Over the weekend we updated our passive investing nerve centre with some fresh links and a new introduction, which is reproduced below. We hope you like what we’ve done with the place!
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.
It’s taken years off you, that makeover…
You may just want to highlight that its about drip feeding money into the market and why. Monevator is probably the best on the internet for passive investing advice, but its an area with perilously few simple guides. Unless you have reason to believe you can beat the market you may as well invest passively… that should cover most people. That said some of us enjoy active investing, but even then there’ room for an index fund to weight to the market average, just in case. You should only use an investment fund if you know it will beat the market by more than the extra cost, if not an index fund is a better option.
I just wanted to say thank you for putting all this info out there. As an American now permanently in the UK, I’d been having a really hard time getting my head around the lack of low-cost index funds over here. Now I’m going to set up my slow and steady passive investment portfolio within my IRA.
One question that I can’t seem to find anywhere– many of the cheap HSBC funds seem to have two versions ‘ACC’ and ‘INC’. I *think* the inc version has something to do with income/dividends, but everything else including the fee looks the same. Is there any reason to choose one over the other? I notice that, for example, you mention HSBC American Index Fund identifier: GB0000470418, which is the ‘ACC’ version, and there is a very similar INC version. Would welcome a quick lesson on what the differences might be and why I should select one over the other. Thanks!
Sorry, I found the answer in the comments to a post from last October:
The difference between Accumulation (ACC) and Income (INC) is that ACC automatically reinvests dividends, whereas INC pays out dividends. INC is for people who want or need an income from their investments; ACC is for people who just want to reinvest the dividends to get the maximum capital growth. If the platform/broker charges for the reinvestment of dividends, ACC gets around this.
You got it, Colette. Here’s some more reading on the subject if you fancy it: http://monevator.com/income-units-versus-accumulation-units-difference/. Thanks for your comments, I’m glad you’re finding the site useful.