How to have money rolling in without doing anything

Paul Summers highlights the benefits of adopting a lazy investment strategy.

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Don’t despair if you can’t find the time to watch the market’s movements on a daily basis – making money from investing need not involve anything more than building a diversified, low-cost portfolio and doing very little afterwards. Here’s what you might want to include. 

Track the index

The popularity of passive vehicles such as index trackers and exchange traded funds (ETFs) has grown massively over recent years as more of us globally realise a lot of fund managers simply aren’t able to generate the high(er) returns they promise after deducting their relatively steep fees. According to researcher FactSet, more than $250bn flooded into ETFs during the first six months of 2017.

Of course, selecting the passive route still means you need to keep an eye on costs. Right now, the cheapest ETF following the FTSE 100 index (offered by iShares) has an ongoing charge of just 0.07%. Rival funds can be more expensive despite doing exactly the same thing, so choose carefully. The difference might look fairly negligible to inexperienced investors but, over many years, it can have a huge impact on how much wealth you are able to accumulate.

Once invested, you can kick back, collect the yield and let the market do the talking. Sure, being tied to an index means you’ll never outperform (meaning they’ll definitely be good years and bad) but as a lazy investment strategy, this takes some beating.

Brilliant bonds

Having at least a proportion of your wealth in bonds is often recommended given the tendency of this asset class to be a lot less volatile than your typical stock. What’s more, the income from bonds is guaranteed unless the issuer defaults. That’s right – you simply collect the income until the bond matures, at which point your capital will be returned to invest elsewhere.

Again, there are cheap, passive funds available through providers like iShares. For those that want to keep some exposure to shares (but with as little fuss as possible), however, Vanguard’s Life Strategy range offers investors different levels of exposure to both asset classes depending on how much risk they are comfortable with. 

What’s the catch with bonds? Simply that a low-interest rate environment means payments are currently very low indeed. Although no one knows for sure when this situation will change, it most certainly will.

Dividend delights

Those willing to put a bit more effort into growing their wealth (at least initially) could also consider assigning a slug of their cash to high dividend paying shares. Some of the UK’s biggest companies including Royal Dutch Shell, Lloyds Bank, and Vodafone all offer forecast yields of more than 6% in the current year. While there can be no guarantee that a business will always be able to distribute money to its owners, this risk can be reduced by buying a diversified bunch of such companies rather than just one or two.

Once this is done, you need only watch the dividends roll in. The only decision you’ll need to make is whether to reinvest those bi-annual payouts or take the income. For those with no immediate need for the cash, the importance of opting for the former and benefitting from compounding over time (i.e. interest on interest) can’t be stressed enough. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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