The Simple Guide to Passive Investing

Passive investing often yields better results than active investing, although the latter can sometimes yield more in the short term. This was recently demonstrated again when the American financial services provider Morningstar published its Active/Passive Barometer. The report compared nearly 30.500 active and passive European funds and concluded that only 29% of actively managed funds performed better than passive funds, after deducting costs.

With the right investment choices and solid guidance, active investing can yield higher returns at times. However, it is difficult to consistently achieve a higher return, because you have to constantly make the right investment choices. With passive investing, on the other hand, you are satisfied with the average return.

What are your options with Passive Investing?

With passive investing, you can, for example, invest in an index fund or an ETF (Exchange-Traded Fund). Both invest in the stocks or bonds of a stock market index, such as the S&P 500, which contains the shares of the 500 most important American companies. The main difference between ETFs and index funds is that you can buy and sell an ETF directly on the stock exchange, whereas you can only invest in an index fund through a bank or a fund manager.

What is the Best Way to Invest Passively?

For passive investing, you usually pay lower transaction costs through an online broker than through a bank or asset manager. Well-known brokers include Bolero, Saxo Bank, and ING Self Invest. However, some banks and brokers do charge additional fees, for example, for safekeeping your securities. If you choose a low-cost foreign broker, you will likely need to handle additional administrative and tax matters.

With a broker, there is less pressure to switch to active investing. On the other hand, online brokers may encourage you more to execute transactions, as they profit from them. A bank, however, can offer more guidance, even to those who invest passively. For example, they can help you choose other products in which you can save and invest.

Do you want to invest automatically in ETFs?

This is currently possible through various brokers and banks. ING Self Invest recently introduced a savings plan that allows you to invest in ETFs. Other brokers, including Bolero and Saxo Bank, already offered this, as did various foreign brokers. With ING's savings plan, you can automatically invest an amount starting from 1 euro every week, every month, or every quarter in ETFs that you select yourself from a list.

You can also opt for an investment plan, in which you invest a self-chosen amount at regular intervals (for example, every month) through banks or asset managers. You do this in a model portfolio tailored to your risk profile, or in investment products of your choice.

The best-performing investment plans often focus on passive investing and ETFs. For example, the Offensive portfolio – Easyvest 10 achieved an average return of 10,38% over the past five years, although this does entail significant risk. However, past performance is no guarantee of future results. The Neutral portfolio of the Axento ETF Beleggen investment plan yielded an average of 4,99% over the past five years, which represents an attractive potential return with less risk.