Improve Your Investment Returns with These Strategies
Increasing Investment Returns
Many people dream of becoming the next Warren Buffet, Charlie Munger or one of the other notable investors. Are you wondering how you could potentially increase your investment returns and gain more wealth? There are many different strategies that can be used to help a person increase their investment returns. Some include; choosing the right investments to include in the portfolio, how a portfolio is managed, price action and diversifying.
Choosing the right investments to be included in the portfolio
With all of the options, it can often be difficult to determine which investments are the best ones to be included in a portfolio. It could be recommended to have a portfolio more heavily weighted towards equities than bonds, even though equities have a more substantial risk than bonds. This would be a part of the risk-return trade-off where you have to be willing to adhere to greater risk in order to achieve greater investment returns. The average annual return on the S&P 500 index, which is comprised of the 500 largest U.S. large-cap stocks, over the past 90 years is 9.8% whereas U.S. Government bond funds averaged 5.5%. Even though they can perform poorly at times, equities will help to increase investment returns over time. This strategy could be different for each investor because it really has to do with how much risk and volatility a person is willing to handle.
How to effectively manage your portfolio
There are two primary methods for portfolio management. You can either choose to actively manage or passively mange your portfolio. If you have a lot of time to monitor the performance of the stock market, active management might be the right method for you to choose, however, active management often requires insights from research analysts and economists. With the extra help needed from portfolio managers in active management, you may have to pay for marketing and sales fees for the managers as some attach a yearly 12b-1 fee. If you choose to passively manage your investment portfolio using benchmark index like vehicles the portfolio could ride out the ups and downs of the market, which could prove to be advantageous in the long-term. Passive management is usually up to three times less expensive than active management. It is typically better not to speculate. Active management does have a component of speculation because it tries to predict future market movements. Many active managers consistently fail to beat benchmarks over time as well.
Reactions to price
In order to make a profit on your investments, it would be obvious to many people that it is best to buy a stock at a low price and sell it at a higher price at a later date. Unfortunately, many people buy into a stock whenever it has increased in price and whenever it starts falling again, they sell it. Think of a stock as an item that you would buy in a store. You would be more likely to buy an item, such as clothing, whenever it was on sale rather than when it is at its full price. When an item is for sale at a lower price it more than likely will not decrease but will increase in price in the future. Stock is the same way, if it is undervalued then it will more than likely increase in the future. It would be recommended to buy into under-priced stocks and let them appreciate in value over time before selling them for an increased value. Of course, some stocks are priced low for a reason ─ they are having difficulty and should be avoided.
Diversifying a portfolio is a major key to help increase returns. If a portfolio is heavily weighted in equities, then the potential for a higher return is there, however, with that potential comes a lot more risk. If a portfolio is heavily weighted in bonds, then the potential for high investment returns is not there. You must diversify your portfolio with the right mixture of investments in order for protection and the possibility of higher returns. A lot of it has to do with how much risk a person is willing to take on. There are items that help to determine the right amount of risk for each individual. It would be recommended to complete a risk profile questionnaire that will generate a score indicating what is right for you.
Banton, C. (2019, February 27). How to Improve Your Portfolio Returns Today. Retrieved from Investopedia: https://www.investopedia.com/articles/stocks/11/6-ways-improve-portfolio-returns.asp
Parker, T. (2018 , March 23). 3 Ways to Increase Your Investment Performance. Retrieved from Investopedia: https://www.investopedia.com/articles/stocks/11/increase-investment-performance.asp