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Top 3 Passive Investments for Hands-Off Investors

Choosing the right investments is an important part of building wealth. If you don’t have the time to take an active role in managing your portfolio, you can still find investments that have a good chance of providing you with steady returns without requiring you to constantly monitor performance. The most hands-off investments will provide you with a nice return and minimum oversight.

Do you have questions about investing? Consult with a financial advisor today.

What Is Hands-Off Investing? 

Hands-off investing is a passive investment strategy where you set your investment portfolio’s asset allocation and then make only minor changes over a long period of time. This means that your portfolio doesn’t require much monitoring. This strategy is well suited for retail investors who may not be experienced enough or have the time required to routinely research and improve their investments.

Hands-off investing is going to require your portfolio to take on either less risky investments that don’t need much monitoring or investments that aren’t meant to pay off for a set period of time. Many hands-off investors will take on an indexing approach where they try to replicate the performance of an index.

If you’re looking for hands-off investment options that can meet this criterion, but want to choose them on your own, here are three good options.

1. Bonds

To the savvy investor, the idea of tying money up in bonds may seem boring. After all, bonds are some of the safest investment vehicles around and lower risk often translates to lower returns.

When you invest in bonds, you’re essentially investing in loans that are made to companies or government entities. In return for your investment, you receive a fixed interest payment and once the loan matures, you typically get the principal and the interest back. You can then reinvest your earnings in more bonds.

Bonds can be good to include in your portfolio when you have a passive investing strategy because your earnings are more or less guaranteed. Since bonds aren’t volatile, you won’t have to worry about market crashes.

2. Real Estate

Top 3 Passive Investments for Hands-Off Investors

Investing in real estate can be a good idea for several reasons. First, it allows you to diversify your portfolio. By investing in different asset classes, you can spread out your risk. Second, real estate prices tend to be less susceptible to market fluctuations. What’s more, you can hedge against inflation by investing in real estate.

Owning a property yourself isn’t exactly a passive exercise. But you can own real estate without having to do a lot of heavy lifting. The two easiest ways to do it are investing in a real estate investment trust (REIT) or investing through a real estate crowdfunding platform.

A REIT is a company that owns property that produces income. When you invest in a REIT, you may be investing in several different properties at one time. Your returns are paid out as dividends stemming from the income that the property generates. You get some of the financial perks of being a landlord without the headaches that go along with managing tenants.

Real estate crowdfunding works in a similar manner. You can invest in equity shares in a property or invest in a mortgage note tied to a particular piece of real estate. Investing in equity tends to yield better returns but debt investments are less risky. Either way, you can earn solid returns without having to lift a finger.

3. Equity Crowdfunding

Top 3 Passive Investments for Hands-Off Investors

Equity crowdfunding is similar to real estate crowdfunding. But instead of putting your money into properties, you’re using it to back startups. Once the domain of accredited investors, equity crowdfunding is now open to investors with lower income levels.

When you invest in equity crowdfunding, you’re really investing in startups that need to raise capital. In return, you get shares of the company. Once the company goes public, you can sell those shares (ideally for a profit). In the meantime, you don’t have to do anything other than wait for the company to take off.

Of course, equity investments are risky. If the company flops, your shares could end up being worthless. It might take years for a company to go public and you might have to wait a while before you can sell your shares. Those are important factors to consider before jumping on the equity bandwagon.

Bottom Line

Passive investments are certainly appealing, but some of them are riskier than others. Taking a look at all of the pros and cons before diving in can help you decide which ones work best for your long-term investment plans. Another option is to invest in an index fund or mimic the success of a particular index fund. This could require a lot of upfront work but then you could set it and see how it performs.

Tips for Passive Investing

  • If you’re not sure where to start or what investments might be right for your personal situation then you may want to discuss it with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you don’t have a lot to invest and want some guidance without the time commitment, you might want to consider using a robo-advisor. Robo-advisors, which are entirely online, offer lower fees and account minimums than traditional financial advisors.

Photo credit: ©iStock.com/amenic181, ©iStock.com/GRAZVYDAS, ©iStock.com/vgajic

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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