Why did passive investments gain such immense popularity among investors in the crypto space lately?
One reason is probably that passive investments, or passive income if you want, are strategies that aim to minimize ongoing decision-making and intervention. In all of this exhausting volatility, it is hard to breathe and think clearly. Why not just step away for a bit and leave the rest to the passives? Constantly monitoring the market and making frequent changes to your portfolio clearly gives you headache over time...
I am literally chillin in my sofa and investing in index funds and exchange-traded funds (ETFs), now following if the SEC is going to approve that BTC Spot ETF so I can get some more passive investments in all of this craziness. However, these investment vehicles aim to replicate the performance of a specific index or a cryptocurrency if you want. One example could be the S&P 500 in New York. Essentially, all you gotta do is snatch up some indexes an sit back, in your sofa, and let the market do its thing. No need to get all fancy trying to outsmart it, even though some folks think it's as easy as pie!
Advantages? Plenty.
I am reducing my stress level quite a lot. In crypto trading, active investing often requires making quick decisions based on market fluctuations and news. This can be emotionally taxing and stressful. I just sit back, relax, and let the investments grow over time without constant oversight.
In most of my cases, I get them at lower costs. Typically, passive investments are associated with lower fees compared to actively managed funds. This means more of your money is working for you rather than being consumed by management fees.
Index funds and ETFs provide instant diversification because they represent a broad market index. This helps spread risk across various sectors and companies, reducing the impact of a single stock's poor performance. Done with that, FOR SURE... Maybe you get 10% on a single trade from time to time, but most are in the minus.
I study active managed fund a lot, though. I can tell you, over the long term, many actively managed funds fail to outperform the market. By tracking market indices, on the other hand, they have consistently delivered competitive returns, often outperforming their actively managed counterparts. Haha, yeah, it is true. It is all a scam!
Tax Efficiency. Yes, since they have lower turnover than actively managed funds, they tend to generate fewer taxable events, resulting in potential tax savings for you. I knew you did not know this one, but it is true!
My favorite is, however, that it is straightforward and easy to understand. You don't need to be a financial expert to invest in index funds or BTC ETFs, making them accessible to a wide range of people.
The key...
to passive investments is the incredible power of compound interest. When you invest in index funds or HBD her at Hive with an mindblowing 20% APR (monthly compunding), your returns generate additional returns, which, in turn, generate more returns. Over time, this compounding effect can significantly grow your wealth. The earlier you start, the more time your investments have to benefit from this compounding, making passive investing an excellent choice in these crazy times in the crypto market. I bet, if you did not choose to invest in index funds or HBD a couple of years ago, but went all in on tokens, you are all in the reds... If it is some comfort, I can tell you that because of these passive approaches I did lately, I am all in the greens!
So, if you're looking for a way to achieve your financial goals with ease, consider incorporating passive investments into your strategy; it might give you a golden ticket to the chocolate factory down the line.
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This blog post should not be considered financial advice or the like but rather as an informative overview.
Cheers
-Olebulls