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Passive investment strategy – 2022 update

Do you want to make your money work while you’re doing something else? This revised passive investment strategy will offer you a simple method to get started that requires little knowledge of the investment world.

Our first guide Investing for beginners (read it first in English or Dutch) is still a great place to start your investment journey, but in 2022 we want to revise it a little. 2022 is also the year that the effects of COVID19 and the war in Ukraine hurt everyone globally in their wallet. And we might forget the impact of climate change, giving us temperatures never seen before. How well does this strategy stand against such influences?

Recap our first passive investment strategy

Up until 2022, we kept investing in the IWDA ETF (Exchange Traded Fund) from iShares. Because we invest in Euro, we picked IWDA on the Amsterdam exchange (AMS).

COVID had a massive impact, but surprisingly the economy recovered 6 months later to the same levels. Growth after COVID seems to have been faster than before. We’ve now entered a decline of more than 20% (called a bear market) which shows the negative sentiment of investors about the global economy.

Is passive investment a good idea now?

If the market is doing poorly, is it a good time to start investing at all? Active investors will most likely look for alternatives, because there a little tools to still earn money (e.g. they might gamble that a stock price will fall, called shorting. But please don’t try this without extensive experience. You can lose more money than you invested).

A passive investor can actually benefit from a dropping market. Since your investment horizon is 10+ years, you benefit from buying more at prices of a year ago. And because you spread your purchases, you don’t need to guess how deep the drop will go.

So the answer is yes, a dropping market is actually a good thing for the passive investor, as long as you have at least 10 years left before you want to take your money out. If not, you should probably secure your money in safer places.

The 2022 Investing strategy

A passive strategy tries to follow the world economy average yearly growth. The s&p500’s average annual return is above 10%, but adjusting for inflation, its true growth is around 7%. By spreading your portfolio globally, you reduce the risk of decline in a specific currency, industry or part of the world.

Compose your portfolio of 80% IWDA and 20% IEMA

The IWDA investment strategy was very focused on the industrialized part of the world and lacked exposure to emerging markets. IEMA is another ETF by iShares that is a nice addition to IWDA. Some sample portfolios recommend combining these in 80% IWDA and 20% IEMA ratios.

Adding IEMA (emerging markets) to your portfolio ensures that you’ve got positions in a market that might boom and take over in the future. Remember that you’re investing on a 10+ year horizon. You might buy cheap now and reap the benefits later.

Conclusion

As the investing for beginners article describes, passive investing requires reducing the costs. Both IWDA and IEMA are part of the Code Selection at DeGiro trading platform. You can trade them for free once per month.

So, for no costs, you can buy the IWDA and IEMA ETFs once a month and consistently work on your long term passive investment.

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What are your thoughts about this strategy? Write in the comments below 👇!

Published inETF

2 Comments

  1. Marnix Marnix

    Hi Toon,

    Thank you for the interesting read and hands-on approach. I got a reply from Degiro that a custody account is not supported anymore for new clients. Would you change your strategy if you would start at this moment knowing this? And also, did you choose a foreign trading platform on purpose or because Degiro offered the best total package?

    Looking forward to your reply.
    Ps: long time no see 😉

    • Hey Marnix, Thanks for visiting and your feedback!

      I had a look and couldn’t find any trace that custody accounts are not supported anymore. Feel free to send me a screenshot if it is the case?

      The only reason for a custody account is to reduce risk that DeGiro might not be able to return your ‘borrowed stock’. I don’t think it’s a big risk, so I would still use DeGiro if a custody account no longer exists.

      I chose DeGiro, because it’s the only platform in EU that allows free trading on select (kernaanbod) stock. Any fees you pay up front you need to recover afterwards. So rather not pay any fees up front. Otherwise, in the EU market it’s quite easy to use financial products of other countries.

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