2022 was a rough year for stocks and bonds. Given the volatility of the market, some consumers may wonder whether passive investing is still a viable option. Passive investing means holding the market portfolio, i.e. the portfolio that contains all available risky assets in proportion to their market weights. This means that you are investing in the entire market and letting the market do the hard work for you.
Rather than trying to pick stocks and outperform the market, passive investing involves simply following the market and taking the same risk and rewards as everyone else. This means that you will be exposed to the same fluctuations as the rest of the market. Because passive investments often look and feel like publicly traded stocks and bonds, investors often approach them using the same tools of analysis.
Agree Realty (NYSE:ADC) defied the odds last year. Shares of the real estate investment trust (REIT) fell less than 1%, which was massive performance given the market turmoil. The stock also outperformed the S&P 500, which was down more than 10%. This is a great example of passive investing in action, as the REIT followed the market’s overall performance during the year.
Passive investing also offers the opportunity to diversify. By investing in a portfolio of stocks and bonds, investors can spread their risk across different sectors and countries. This is especially important in a volatile market, as investors can take advantage of the different economic cycles in different parts of the world.
Passive investing is also becoming increasingly popular as more investors look for low-cost, diversified portfolios. Exchange-traded funds (ETFs) are one of the most popular ways to invest in a diversified portfolio. ETFs are funds that track an index, such as the S&P 500. They provide investors with instant diversification and low cost.
In addition to ETFs, passive investments now also come in the form of mutual funds, index funds and even bonds. investors can now use these vehicles to gain access to a wide range of investments and markets. This makes it easier for investors to diversify their portfolios and reduce their risk.
In summary, passive investing is evolving rapidly, offering solutions in an increasingly broader universe of asset classes, styles and themes. Passive investing is putting one’s money into funds that follow an index. Because the portfolio has already been determined by the index, investors don’t have to worry about researching and picking individual stocks. This can be a great way to invest in a diversified portfolio without having to worry about the stock market.
