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CandleFocus Glossary Editor
Hands-off investor is an investment strategy in which an investor takes a more passive or inactive role in their portfolio and makes few changes over time. In this investing strategy, the investor will make all the asset allocations and other investment decisions, but then leaves it all untouched.
The investor's portfolio will typically consist of index funds, exchange-traded funds (ETFs), or target-date funds, as they are better suited for a passive approach. These types of funds offer greater diversification and higher returns than individually-selected stocks or securities. Historically, passively managed funds have also outperformed their actively managed counterparts over time, as evidenced by a look at the S&P 500’s return.
A hands-off investor will be fewer transactions and larger asset allocations, meaning less maintenance and less capital moved around. Longer-term securities (i.e. stocks and bonds with longer durations) will be preferred over their short-term counterparts, as this investor is looking for stability and less actively involved. A hands-off investor also never risks too much money by investing all of their capital in stocks or bonds, either.
The primary benefit to this type of investing is that it can be just as - if not more - lucrative since the investor is not trying to outguess the market, nor needs to spend a significant amount of time and effort staying on top of the latest trends and news. This strategy does have some risks, however. The investor may miss out on dramatic market opportunities, for one. Furthermore, the portfolio may not adequately reflect changes in the investor's life - such as retirement - and need to be adjusted accordingly.
Despite the risks, a hands-off investment strategy can be a great option for those without the time, energy, or expertise to actively manage their portfolios. It offers a way to passively earn a decent return on their investments with minimal effort. This strategy is excellent for someone who is looking to "set it and forget it", allowing them to sit back and relax, knowing their investments will run on autopilot.
The investor's portfolio will typically consist of index funds, exchange-traded funds (ETFs), or target-date funds, as they are better suited for a passive approach. These types of funds offer greater diversification and higher returns than individually-selected stocks or securities. Historically, passively managed funds have also outperformed their actively managed counterparts over time, as evidenced by a look at the S&P 500’s return.
A hands-off investor will be fewer transactions and larger asset allocations, meaning less maintenance and less capital moved around. Longer-term securities (i.e. stocks and bonds with longer durations) will be preferred over their short-term counterparts, as this investor is looking for stability and less actively involved. A hands-off investor also never risks too much money by investing all of their capital in stocks or bonds, either.
The primary benefit to this type of investing is that it can be just as - if not more - lucrative since the investor is not trying to outguess the market, nor needs to spend a significant amount of time and effort staying on top of the latest trends and news. This strategy does have some risks, however. The investor may miss out on dramatic market opportunities, for one. Furthermore, the portfolio may not adequately reflect changes in the investor's life - such as retirement - and need to be adjusted accordingly.
Despite the risks, a hands-off investment strategy can be a great option for those without the time, energy, or expertise to actively manage their portfolios. It offers a way to passively earn a decent return on their investments with minimal effort. This strategy is excellent for someone who is looking to "set it and forget it", allowing them to sit back and relax, knowing their investments will run on autopilot.