Does the majority of people understand what passive investments mean? I'd argue that most don't, or have unrealistic expectations regarding this type of investment and what "passive" really means.
I'd also argue that if more would understand what passive investments mean and apply it correctly, less people would be poor or just getting by with their lifes.
Passive investments or passive income have been almost glorified during recent decades, but in a way that people interpret as "set it and forget it". A form of capitulation either to laziness or to lack of knowledge or responsibility.
Some would say there are pure passive investments, for example, S&P500, which on average goes up 8% yearly. But is it? I don't know how this is in other places, but in my country bank deposits up to a limit are guaranteed, but capital investments are not. So what happens if the brokerage firm goes under? You've lost your investment, right? So you must at least keep an eye on market systemic risks and signs of problems with the brokerage firm (which isn't easy).
In the US I think you can buy that as part of your retirement plan (I don't know details, so don't quote me on that), probably with some protection. But even that is a matter of choosing the best investments over time so that at the end of your career you have enough funds there...
If you go with a managed account, then it's passive for you, but it's not really passive investing, and you pay for having your account managed. You also pay forms of commissions for investing in hedge funds, mutual funds, ETFs, etc.
Let's move to Hive. What is considered the best passive income currently on Hive? HBD in savings, right?
Say you add 10,000 HBD to savings at 20% APR, considering it a passive investment. Is it ok to ignore this investment for, let's say, 5 years, and return to collect the interest then?
Let's see...
- 3 years ago there was no interest on HBD in savings (not developed yet)
- the interest is not fixed and can be changed at any time by the majority of top witnesses signalling to a different rate
- debt ratio can go above 30% and then no interest will be paid out and the conversion to 1$ worth of HIVE is no longer guaranteed by the blockchain
So, do you think it's wise to make such an investment and return after 5 years to collect the interest and maybe the principal too?
The same idea (with deeper concerns) applies to other stablecoins and return offered on them. Would you invest in such a stablecoin on the principle "set it and forget it", knowing regulations will come that will most likely affect them? What if someone would have invested in BUSD this way 3 years ago with the plan to come back after 10 years only to find out BUSD is no more... At least not backed by anything or anyone.
What I understand by passive investment is something that doesn't need regular actions after it grew big enough to be self-fueling, but at the same time it needs occasional supervision and adjustments, and if required, more decisive actions.
There are three phases for a passive investment, from my point of view:
- the growth phase, characterized by micromanaging, regularly adding more funds and compounding
- the mature phase, when it becomes self-fueled and starts delivering significant ROI
- the end phase, when, despite the self-fueling capacity of the passive investment, the base investment is in big trouble and a gradual (or abrupt) exit is probably recommended - most people would be in denial about this phase (maybe even me), that's another reason why most people are not rich
Treating a passive investment as a "set it and forget it" investment (encouraged by all the automation we got used to), is probably one of the biggest mistakes, other than not being consistent and determined in developing the passive investment while it's still in the growth phase, and draining it before it matures.
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