How to make more money by being lazy

If it’s too good to be true, it probably is… except when it’s not.

Passive investing is one of those areas that sounds too good to be true at first. Who would think that the easier, cheaper form of investing is also the best way to make the most money?

But it’s true.

Passive investing goes by a few different names. Some call it buy and hold, or index investing.

The important thing is that it’s exactly what the name sounds like. Do less. Reap the rewards.

Any time you change investments or move your money around, you pay other people fees, and take a risk that the market won’t work in your favour.

So if we’re talking property, the passive idea is you buy a house as a long-term investment, make sure it has good rental returns, and then keep it maintained.

Listen to the podcast below on the topic and scroll down for more episodes in the series

You save money on real estate agent fees, don’t spend your time guessing if the market is going up or down, and don’t run the risk of selling at exactly the wrong time because your crystal ball got it wrong.

If we’re talking shares, you put money in an index fund that tracks a bunch of different companies, costs very little in fees, and then leave it alone.

Again you’re saving money on other people taking a commission every time you shuffle it around, and avoid being tempted to try to buy low and sell high.

Human beings are emotional creatures, which means our crystal balls are almost always wrong, and we’ll sell at the wrong time.

Even highly educated professionals fail at trying to do that. In 2016 the Wall Street Journal published research showing “between 71 and 93 percent” of US mutual funds (active investing) were beaten by the closest comparable index fund (that’s passive).

So only the top seven percent of those in the financial industry can put in enough effort to beat the lazy way.

I’m not going to flatter myself that I’m one of those exceptional people, and you shouldn’t either. Ego can kill your nest egg, fast.

Don’t get sucked in by someone else’s short-term run of luck, either. Sometimes you can strike it lucky once or twice, but constantly shuffling your investments around means eventually you’ll get burned.

Often that burn can be enough to outweigh any profits you made.

For property, you can really only be passive in your buying strategy – hence why it becomes known as buy and hold.

Ignoring maintenance or tenant issues is not exactly a quality or long-term approach.

But you take reduce costs and create a long-term strategy by buying a good property once, then waiting a few months or years until it’s steady and earning more than it’s costing you in mortgage.

Then instead of selling and hoping for a quick profit, you can use it as an asset to help you buy a second quality property. You keep the golden goose for its eggs, rather than killing it.

The best thing is that a better quality property is likely to attract better tenants, once again saving you time and energy.

We’re taught that working harder should get us better results, so passive investing feels like it shouldn’t work.

But all of the evidence shows that it not only works, you’ll make more money in the long run by doing less.

Embrace the one time that being lazier works out for you.

Listen to other episodes in the series:

After an investment property? Time to think commercial

How to budget for a house deposit without depriving yourself

How first-home buyers can build their own unique solution

Could the rule of 100 turn around your fortunes?

Is NZ ready for first-home buyer landlords?

The tough talk you need to have when saving for a house

How to house hack your way to smaller household bills

Is now the time to get nervous about your KiwiSaver?

How to solve land headaches

Renovate or detonate?

Apartment v house

How to crush the debt

Tricks for paying off the mortgage faster

The power of location

Negotiating a mortgage

Saving for a deposit

Buy v rent

- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial adviser, and all information is general in nature. For individual advice, see a financial adviser. Listen to her podcast on OneRoof.co.nz