Today’s investors are all looking for ways to earn higher returns. If you want to get ahead of the financial curve, you will need to pick the best investment strategies so that you ensure that you maximize returns and avoid capital losses.
Be consistent with your investments
The easiest method for wealth generation is automation. You can’t guarantee the performance of the stock markets, but you can control your actions. That means making regular contributions to your investment accounts. The more consistent you are when saving and investing, the faster your investment portfolio will grow.
Making regular investments is one of the best ways to meet a big goal while feeling only a small impact on your daily life. For example, if you invest in mutual funds, you can set up automatic investments to make it easier to stick to your plan. Another popular method is dollar cost averaging (DCA): buying shares at different prices every month. When shares are more expensive, you’ll buy fewer of them; when they’re cheaper, you’ll buy more. Overall, this will push down the average cost of your shares.
Don’t Fear Risk
Investing is always an activity that involves betting on the unknown. Even U.S. Government bonds, which are considered to be among the safest investments, can be quite risky. While low-risk investments such as government bonds are generally considered to be safe, they might not earn enough money to outpace inflation and provide the portfolio growth you need to reach your investment goals.
Investors should invest in a way that balances risk and returns to ensure a combination of safety and portfolio growth. This can be a delicate balance, and it is entirely up to every investor to choose the amount of risk or the investment risk tolerance.
Avoid overreacting to market conditions
Risk tolerance should be used to help create a written Investment Policy Statement (IPS). Every investor should have a written IPS that includes investment goals and a timeline, risk tolerance, plans on how to invest (asset allocation, asset classes, types of investments), and the date when the investment portfolio will be rebalanced.
An IPS doesn’t have to be elaborate. It can be enough to include only a few sentences on each topic. Having a written IPS can give investors a written guide to reference when markets become volatile. Instead of following the markets, investors can refer to their own IPS. It helps to separate decision making from the emotions of a difficult market.
Cut your investment expenses
Despite how complicated portfolio investing has become over the last several decades, some simple tools have proved over time to improve investment results. Regardless, one key and basic tip is to always keep a close eye on portfolio expenses, as reducing these costs adds more to their return. For example, even though taxes are unavoidable, the U.S. tax code allows investors ways to minimize their taxes on investments.
Another easy way to boost your investment returns is to reduce expenses such as management fees. There are fees that are clearly disclosed, and there are hidden fees in fine print on your fund’s prospectus. Each percentage, as little as it may seem, can directly impact your returns, most of all when compounded over time.