Investing is often portrayed as a 'rich man's game' in popular culture – the province of cigar-smoking capitalists that spend all day trading shares and making millions.
Whilst I'm sure some investors do fit this bill, investing successfully really isn't too hard – especially if you take the 'lazy investor' road.
By lazy, I'm referring to a strategy known as passive investing. It's a totally legitimate (and potentially lucrative) way of buying shares that is rapidly growing in popularity.
Why?
Well, because of the ability for everyone – lazy or not – to do it without more than a few minutes a month of effort required.
There are three simple steps:
Step One – Choose index funds to invest in
Index funds work by tracking entire markets. For example, one of the most popular index funds in Australia is the Vanguard Australian Shares Index ETF (ASX: VAS). This fund simply buys a weighted position in the 300 largest Aussie companies. That's everything from Westpac Banking Corp (ASX: WBC) to Coles Group Ltd (ASX: COL) and Sydney Airport Holdings Pty Ltd (ASX: SYD).
If a company goes bust and drops out of the top 300, the index fund automatically replaces it. In this way, you don't have to worry about picking your own shares because the fund does it for you. You are always invested in the largest 300 companies in Australia period.
You might like to add to the Aussie shares by buying an international index fund like the iShares Global 100 ETF (ASX: IOO). This fund does the same thing, only with the largest 100 companies in the world instead of the ASX 300. That's everything from Apple and Microsoft to Nestle and ExxonMobil.
Index funds like these have their ups and downs, but almost always go up over the long run.
Step Two – Throw as much money in as possible
Every time you have a spare dollar, you would do well to invest it in the index funds you've set up. Whether it's every month, every quarter or every year, the key to passively building wealth is consistent investing – regardless of whether the stock markets are booming or crashing. Over time, you should get an average return from the markets, which normally ranges from 7-10%.
This money compounds as well, paying you more and more dividends (which you can reinvest) on top of your growth.
If someone invested a lump sum of $20,000 using this strategy and added just $500 a month for 25 years, they would end up with around $622,000 (assuming an 8% return). Not a bad result, in my book, considering only $150,000 of that would actually be their own cash.
Step Three – Never sell
The single biggest destroyer of wealth for most investors is selling at the wrong time. With this strategy, you really don't need to worry about selling at all as you're essentially making a bet on long-term economic growth. So don't sell if there's a share market crash and definitely don't sell when you realise you have enough money to buy a Lamborghini. So if you want to go down this 'lazy investor' path – I would recommend having an 'always buy, never sell' attitude.
Foolish Takeaway
This 'lazy investor' strategy would be very easy for most people to implement and could result in some life-changing results if done consistently throughout a lifetime. Investing doesn't have to be hard or time-consuming, you just have to have a strategy and stick with it!
