Passive strategies require little change in the portfolio, with a few occasional adjustments to offset market change or investment objective changes. This method assumes that the investments are made in an efficient market. An efficient market is a market where the price reflects all the available information and the investor will experience few surprises.
1. Balance mutual funds
Mutual funds are usually a mix of investments, with different risks and maturity dates. Balanced fund managers offer diversification for the small investor, and the fund primarily invests in a mix of equities, different maturity date bonds, and stocks and bonds with different risk levels.
2. Index portfolio
An indexed portfolio is designed to duplicate a major index, like the NASDAQ 1000 index. The portfolio includes the same shares in the same proportion and the purpose is to duplicate performance, not to out-perform the market. The returns are quite predictable. This method is used more often with equities than bonds.
3. Dollar cost averaging
Investments are purchased at regular time intervals regardless the fluctuation of prices. If the price trend is downward, the average price will be greater than the current price. If the trend is up, then the average cost will be less than the current price. This method is also an alternative for market timing.
4. Buy and Hold
The buy & hold strategy aims to provide the highest rate of return for a given level of risk. When using this strategy,stocks and bonds are held for a long period of time or until investment matures.
5. Dividends reinvestment plan
The dividends paid by public trading companies are reinvested in additional shares. The investor pays tax on the dividend as though it were taken in cash. The reinvestment plan purchases are made by a trustee.
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