Passive investing in ETFs
With passive investing you invest slow but steady, by buying and holding a wide range of assets. For example, by automatically investing money each month in popular options like funds or ETFs. It is simple, low-cost, and you can start right away. Here you will find a step-by-step plan, including the main advantages and disadvantages.
Please note: investing involves risks. On an investment platform, you can lose part or all of the money you put in.
Content:
- Opening an investment account
- Setting up automatic investing
- Popular products for passive investors
- Popular ETFs for passive income
- Passive investing in non-listed funds
Passive investing
Passive investing is simple and does not require much knowledge. The returns are often even better than with active investing. It is hard to predict the market in advance, and with passive investing you also pay fewer and lower transaction costs. These costs have a big impact on your final return.
Long term investing at low cost
Passive investing is mostly about investing in a wide diversification, while keeping costs low. By holding your investments for a longer time (buy-and-hold strategy), you make fewer transactions and make each one count.
For example, by investing in products that already offer diversification, such as ETFs or funds. If possible, combine this with a broker that offers low fees.
Investment advisors can often estimate which companies might do better or worse than an index or broad fund. But if you follow all their advice, you will make many transactions and also need to pay for the advisor’s services. These costs can have a big impact on your final returns, especially in the long term.
Opening an investment account
If you want to invest on the stock exchange, you need an investment account. Almost every broker allows you to buy stocks, so you can choose the platform that suits you best. However, some brokers focus specifically on passive investors. A few popular platforms where European investors can easily open such an investment account are:
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Offers investment options for passive investors, including bonds, ETFs, and real estate. European market leader in p2p lending, with an average return of 10.9% on Core Loans or 3.25% interest on instantly accessible savings via Smart Cash. Currently, new investors receive a welcome bonus.
Invest in over 1 million stocks, ETFs, bonds, and other instruments across U.S., European, and Asian markets. Explore predefined selections of high-yield ETFs and bonds with potential dividend returns of up to 6% in EUR. Utilize in-house market research and weekly investment ideas.
Setting up automatic investing
To invest automatically, you usually transfer money from your bank to your broker every month. With official brokers, you often get your own IBAN, which makes this easy. You then use the balance to manually buy investments, for example at the end of each month.
If you want to do even less manually, some brokers offer automatic options (recurring investments). Saxo Bank, Trade Republic, Mintos and eToro all offer monthly investing plans. As long as you have enough balance on the platform, it will automatically invest each month in selected products at low cost.
Popular products for passive investors
After choosing an investment platform, it is important to decide what you want to invest in. Most passive investors choose wide diversification by investing in funds or ETFs.
Investing in ETFs
An ETF is a product that invests in several stocks or other assets based on a fixed plan. For example, it can follow all the stocks in a specific index, such as the DAX, AEX, or CAC. This way, your return is similar to the return of the full index.
ETFs are often linked to index investing, but there are many different types. Some ETFs focus on a specific investment strategy or sector. For example, an ETF focused on fashion or the chemical industry spreads your investment across several companies in that category. This helps limit the impact of one bad investment.
The advantage of this is that, as a passive investor, you do not need to choose which stocks to buy or how to divide your investments. The downside is that you cannot exclude certain companies. For example, if you do not want to invest in Shell because you find the company not sustainable enough, you will still invest in it through an AEX ETF. If sustainability is important to you, there are also ETFs that focus mainly on sustainable companies.
Another downside is that stock-based ETFs change in value, just like the stocks it invests in. Like stocks, you can lose money because of this. Especially in the short term. Many investors check their portfolio often to see how the value is changing. If this gives you stress or makes you feel uneasy, stock ETFs might not be the best choice for you.
Popular ETFs for passive income
Planning to invest in ETFs? Then you need to find the right one. There are many different types, so choosing the best ETF can be a challenge. First, it is important to decide how much risk you want to take and how much diversification you prefer. Do you want to invest only in stocks, or should the ETF also include bonds and real estate?
Next, you need to choose the region you want to invest in. Do you prefer only European products, American ones, or global investments? A third question is: do you want to invest in a specific theme, or do you prefer the widest possible spread?
Here are a few well-known ETFs that offer wide diversification in popular global investments:
This ETF invests globally in stocks with a focus on dividend payments. It includes companies such as Solvay SA, Highwoods Properties Inc., and Vanguard International Semiconductor Corp. The ETF pays out dividends every quarter. Annual cost: 0,45 percent. ISIN code: IE00B9CQXS71.
An ETF with different types of investments. It includes government bonds, shares of a large international real estate fund, and bonds from major companies. Among the multi-asset ETFs from VanEck, the Growth version is the most growth-focused. Annual cost: 0,32 percent. ISIN code: NL0009272780.
Tracks the performance of the MSCI Europe Index, which includes companies from developed European countries. The ETF holds 415 positions, with major holdings in companies like SAP SE, ASML Holding NV, and Nestlé SA. Annual cost: 0,12 percent. ISIN code: IE00B1YZSC51.
ETF focused on listed stocks of companies worldwide. Number of positions: 1,431 (June 2024). American companies such as Microsoft, Apple, and NVIDIA have a strong presence. Annual cost: 0,20 percent. ISIN code: IE00B4L5Y983.
Tracks the performance of the S&P 500 index. This index includes the five hundred largest companies in the United States, such as NVIDIA, Microsoft, Exxon Mobil, and Tesla. Annual cost: 0,03 percent. ISIN code: IE00B3XXRP09.
Passive investing in non-listed funds
If you want to invest passively in real estate, business loans, or mortgages, you can choose ETFs, but there are also options outside the stock exchange. There are several funds you can invest in. Larger funds often offer broad diversification, such as the real estate funds from French provider Corum or Dutch provider Synvest.
One advantage is that the value of these investments does not change daily, so you do not have to monitor them often. The returns often look more stable. Real estate and mortgage funds, for example, usually offer a fixed interest rate or dividend. A fixed return is ideal for passive investing.
But there are also downsides. Many funds focus on one sector, such as real estate. If that market goes down, it affects the whole fund. Also, non-listed funds sometimes require a high minimum investment, such as one hundred thousand euro. In some cases, it is hard to exit the fund quickly, and extra costs may apply if you want to sell early. These funds are best suited if you plan to invest for a longer period, which is usually the goal with passive investing.
