Carnival of Passive Investing # 15 – What Passive Investing Is and Is Not – February 2012 Edition

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Welcome to the February 2012 (the 15th total!) edition of Carnival of Passive Investing – a monthly collection of the best and most intelligent passive investing strategy articles around the internet! Some people foolishly want to beat the market (want being the key word), but we just want to invest with it.

As discussed in my introductory post for this carnival, the purpose of this carnival is two-fold:

  • To provide a forum to showcase articles and research in passive investing strategies (i.e. investing in ETFs, index mutual funds, etc. in such a way that one avoids employing active stock picking). By investing with the market, we are able to beat 70-80% of investment “professionals.”
  • To create a community of passive investment bloggers to connect and share expertise.

It’s crazy to think that it’s been exactly a year since I last hosted an edition of this Carnival that I started back in December of 2010. We’ve had some really great guest hosts over that time, and it’s been fun to watch the Carnival evolve. A big thanks goes out to everyone who has helped out! I deeply appreciate it! 

Over the past year, I’ve noticed that we’ve gotten a lot of submissions that center around topics that are closely related and/or sound like passive investing, but do not quite fall in to this specific category of investing styles/personal finance interest and therefore, have to be excluded from the final selection of the carnivals. 


As such, I thought it might be nice to make the theme for this month’s Carnival as showing several examples of topics that are and are not passive investing to keep this distinction fresh in our minds. This isn’t meant to point fingers or criticize anyone, but rather is simply for the sake of continuous improvement to our focused goal here with the Carnival of Passive Investing. 

Please enjoy and stop by my blog on my non-carnival days as well.

Listed below are this month’s top 4 editor’s picks!

1. Nick presents How NOT to invest posted at Step Away from the Mall.

In this article, Nick takes a look at several things. First, he analyzes how much extra time it takes to do the research necessary to attempt to outperform the market and points out how for most smaller investors, the added return this will give (if any) is often not worth the time commitment. Second, he discusses the dangers of following the advice of market pundits in the financial media on the direction of the markets in the future. 


2. Echo presents How Index Funds Compare To Equity Mutual Funds posted at Boomer & Echo.

Echo presents a direct comparison of the performance of active vs. passively managed mutual funds from the same asset classes over the past year years. The results strikingly show that the passively managed index funds not only have lower fees, but also significantly outperform the actively managed funds when considering the growth of a $10,000 initial investment.


3. Dan presents International Bond ETFs posted at High Yield Edge.


Interesting article here about international bonds/bond funds! Right now, my fixed income investment asset allocation only includes US securities. However, I’ve often wondered if there are any additional diversification benefits of expanding this to foreign fixed income securities as well. Any one have any thoughts on this? 


4. Money Counselor presents Stock Sell Signal? posted at Money Counselor, saying, “BlackRock co-founder, Chairman, and CEO Larry Fink is a billionaire. Does that mean he’s a great stock price prognosticator? Evidently, no.” 

While this post isn’t about a specific passive investing strategy, I really liked the graph that shows the levels at which Larry Fink predicted that the stock market was set to take off. One of these times was March 13th, 2008, and we all know where the markets headed shortly after that date. If the CEO of Blackrock apparently has trouble predicting the direction of the market, it seems like it would be even harder/impossible to do so for average investors like me. This is why I choose to stick with a passive investing strategy instead of trying to time the market.


Congrats to our 4 winners this month! Listed below are the rest of this month’s spectacular passive investing articles!

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Passive investing is not  Analyzing/selecting individual dividend stocks to generate passive income. Passive income actually has nothing to do with a passive investing strategy. Passive investing also does not relate to creating passive income through starting a blog, affiliate marketing, or sales of products.
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W. Wise presents The 10 Commandments of Growing Wealth posted at Wealth and Wise.

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Passive investing is not  Assessing where the market will go in the future, even if it involves predicting the direction of an entire index, such as the S&P500. 
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Steve presents My Secret to Get Rich Quick (Enough) posted at Money Infant

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Passive investing is not  Analyzing the activities involved in renting out a real estate property you own. However, assessing how a passively managed real estate REIT or index mutual fund might or might not fit in to your asset allocation would fall in to the category of passive investing.  
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Teacher Man presents Should You Invest In Individual Stocks? posted at My University Money. 

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Passive investing is  Investing with the market through the use of proper asset allocation, index investing, ETFs, portfolio rebalancing due to market fluctuations, asset class evaluation, controlling investor emotions, etc.
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LivingInVol presents Mad Skillz [part 1] posted at Living in volatility, saying, “A reality check for the difficultly of active trading.”


Well, that wraps up this month’s edition. A big thanks to everyone for participating! 


You can submit your passive investing posts for the March 2012 edition of the Carnival of Passive Investing (hosted by Free From Broke) by clicking the link below:


Blog Carnival HQ – Carnival of Passive Investing – Submit Your Posts

    ***Photo courtesy of http://images.cdn.fotopedia.com/flickr-2200500024-hd.jpg

    Comments

    1. Kurt @MoneyCounselor says:

      Thanks much for including my Money Counselor post! And I'm with you on trying to time the market–guaranteed to be maddening, imo!
      My recent post DIY Debt Payoff #1

    2. Hey Jacob, thanks for inclusion in this weeks Carnival of Passive Investing!
      My recent post February Stats and Mentions

    3. Thanks for the clarification and for some good reads!
      My recent post Why We Decided Not to Buy a House….

    4. Thanks to everyone for getting involved in keeping this carnival going!
      My recent post Saving Money on Your Health Insurance

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