Passive investment is cheaper, less complex, and often produces superior after-tax results over medium to long time horizons than actively managed portfolios.
The purpose of passive investment is to build wealth gradually. Also known as a purchase and maintenance strategy, passive investment means buying a security to own it in the long run. Unlike active traders, passive investors do not seek to profit from short-term price fluctuations or market timing. Also reduce stress, as you do not need to monitor the market daily (or even weekly). And, finally, reduce investment analysis time.
Unlike active investment, where the investor needs to spend hours analyzing each asset and then choosing which one to buy or sell, in the passive investment it is only necessary to define an asset allocation and maintain this composition over time.
In a broad sense, we are talking about the “buy and keep” strategy, when the portfolio is formed and the money invested in the long run works without the active participation of the investor.
In addition, the resulting profit should ideally be reinvested, that is, directed towards the purchase of new assets.
Examples Passive investments are different. Among them are bank deposits, real estate, bonds and shares acquired under long-term strategies.
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