Not all investing is equal: some forms of investing are what we call active and some passive.
Passive means that very little work is required to make your money grow as opposed to active.
So if we look at investing as a scale from active to passive, it would look something like this:
Starting a Business is the least passive form of investing; it requires a lot of work upfront.
Property can be somewhat passive, depending on whether you manage it yourself or not.
Commodities are quite passive, in that you buy and hold, but may not have the best returns.
Stocks and shares are a very passive way of investing, especially if you invest in Index Funds.
In this blog, I go into more details about investing, starting with the least to the most passive.
I discuss not just how passive they are but how well they generate a return or pay you income.
Finally, I consider which option may be best for you and where to find out more information.
Least Passive: Building a Business
We’ve heard of the benefits of starting a business: being in control, follow your passion, etc.
It is also a great form of investing: an asset that increases in value, pays you, and can be sold.
There are 2 ways that you invest in a business: not just with your money, but with your time.
So the question is: how passive is building a business? Can starting a business ever be passive?
The answer is no: it’s no surprise that starting a business is the least passive way of investing.
There are more passive businesses than others e.g. starting a blog vs starting a tech start-up.
However, even blogging takes up a lot of time, such as writing content each and every week.
Yes it does get better over time; once you start automating processes, it gets more passive.
You can even outsource your work to other companies or hire people to take on certain tasks.
However, if you are looking for passivity right away, then starting a business is not that path.
Somewhat Passive: Property/Real Estate
You can’t talk about investing without talking about real estate/property investing.
They say that more millionaires have been made from property than any other asset class.
This may have been true before the internet, but I think the internet now makes more wealth.
The question is: how passive is investing in real estate? Is property investing deemed passive?
The answer is: property investing can be passive, if you pay a company to manage it for you.
The concept of property is simple: you buy a house, you rent it out, and you receive cash flow.
However, it is not as straight forward as that: with all tenants, there will start to be problems.
Taps stop working, toilets need to fixed, windows need to be replaced, and the list goes on.
To sort all of this out is time consuming, which is why you can pay a management company.
So property investing can be passive if you hire a company, but then that eats into your profit.
More Passive: Commodities
As we move further down the list, we then come on to an asset class known as commodities.
Commodities refer to a broad range of assets such as gold, silver, fine art, wines, and more.
The idea with this investing is that you buy gold for example and hope that its grows in value.
After a period of time, you can sell it for more than you purchased it without doing any work.
Is commodities a passive form of investing? Yes, commodities is a form of passive investing.
However, while commodities are technically passive, they do not generate the best returns.
For example, gold has increased in value over the past 30 years by 360% – sounds good right?
If you had invested in an index fund as I explain below over 30 years, that increased by 991%
That is a 3x increase in the index fund compared to the commodity of gold in the same time.
Although commodities are a passive form of investment, they may not give the best returns.
Most Passive: Stocks and Shares
Finally, we come to bottom of the list in terms of passive investing which is stocks and shares.
Stocks/shares refer to the ownership of stocks/shares of publicly traded companies globally.
The idea of owning stocks in companies is if they do well then the value of the share increases.
As well as that, by being a shareholder of that company, you are also paid a share of profits.
Is stocks/shares the most passive way of investing? The answer is: it depends how you invest.
There are different ways people invest in the stock market, such as picking individual stocks or paying someone to invest for them. However these methods are ineffective and expensive.
This is why I prefer investing in index funds; the most passive investing yet has great returns.
Rather than choosing which companies to invest in, you can invest in thousands all at once.
To find more about index fund stock market investing, I wrote a blog about it in more detail.
Which Passive Investment is Right for You?
When considering which investment vehicle to choose, consider 2 aspects: time and money.
If you don’t have that much money, well then maybe starting a business is your only choice.
Although it’s not that passive, it may be the only option you have until you have more money.
However, if you have more money to invest than time, then you can choose any of the above.
Personally, I would go with stock market investing, specifically investing in global index funds.
Not only is it the most passive form of investing but it has the best returns and the least fees.
To find out more about index fund investing, check out the book The Simple Path to Wealth.
In this book, the author talks about how he used his index funds to achieve early retirement.
Which passive form of investing do you use or want to start? Please share in the comments.
If you want to find out more passive investing, please let me know in the comments below!
