You must save money on a regular basis, invest consistently, and learn to stay the course for as long as it takes to build a substantial investment portfolio. However, there are a number of ways that might help you consistently increase your investment returns over time. Here are some of the best ways to achieve consistently good returns on your investments:
Get Serious About Investment Portfolio Diversification
The importance of diversification is something that most of us are aware of. However, the concept can easily be forgotten if some investments do exceptionally well for a period of time. After all, in a rising market, having a disproportionately big equity allocation can actually help your portfolio perform better – at least for the duration of the bull market.
But there’s a catch: bull markets never last. 2020 should have served as a wake-up call to everybody who has neglected sufficient diversification in recent years. Markets decline considerably more swiftly than they rise, requiring extensive planning ahead of time. And that is what diversification is all about: being ready for the unexpected.
Maintain suitable percentages of your portfolio in both fixed income investments and cash equivalents, regardless of how well your stock allocation is performing. They will help you in minimizing the losses you would incur on your stock allocation in a down market. It’s crucial to remember that limiting losses in a bear market is just as important as maximizing gains in a bull market.
Rebalance As Needed
The goal of rebalancing is to restore your portfolio’s original level of diversification. If you originally planned to invest 60% of your portfolio in stocks, 30% in bonds, and 10% in cash, it’s time to rebalance if your stock allocation has risen much beyond 60%.
In a bear market, the same is true. If your stock allocation has fallen to 40% as a result of the market’s decline, you should rebalance to raise your holdings. When the market recovers, you’ll be able to profit from the gains.
Tune Out the TV (and Social Media) ‘Experts’
If you are like most sensible investors, you’ll be working with a properly licensed, experienced investment advisor. But you also probably watch TV and browse the Internet, where you’ll find all kinds of ‘advice’ from self professed investment gurus.
These ‘experts’ constantly make big claims about markets going up or down, or claim to have secret strategies that have made them millions. And sometimes their advice might be different to the wisdom you’ve been following to build your investment portfolio.
Most of the time, though, “experts” who make such assertions are little more than fortune tellers. They don’t know where the market is going any better than you or anyone else, but they definitely think they do.
That isn’t to say they aren’t dangerous. They may readily catch your attention because they deal mostly in hyperbole. After all, no one wants to be caught off guard while big things are going on. And if a self-proclaimed expert can present himself as credible, you might just believe he knows what’s going on.
If you want to be a successful investor, especially in the long run, you’ll need to learn to block out this type of chatter. It only serves to divert your attention away from your own financial objectives and strategies, which will not benefit you in the long run.
Continue Investing in Your Portfolio No Matter What the Market is Doing
A portfolio that grows as a result of both investment profits and regular contributions might increase rapidly. You should never let the direction of the market influence your contributions, but this is exactly what happens from time to time.
Both bull and downturn markets can make you cautious to keep adding to your portfolio:
- During bull markets, great investment returns can easily persuade you that you don’t need to make any more contributions.
- During weak markets, it’s easy to believe that adding to your investing portfolio is akin to throwing good money after bad.
Both of these assumptions are entirely untrue. Contributing to your portfolio during a bull market can not only accelerate the growth of your portfolio, but it will also give you additional funds for future investments.
It’s even more crucial to keep adding to your portfolio during a down market. If your portfolio is losing value owing to low returns, your contributions will be the only thing keeping it from falling further. Even more importantly, the fresh money you put into your portfolio will serve as capital to buy stocks at great discounts when the market is at its lowest point and then begins to rise.
Play the Long Game
The “get rich quick” mentality is probably the worst misconception that can influence any investor. During bull markets, it’s extremely difficult to resist. Everywhere you turn, gurus claim that if you follow their plan, you may double or quadruple your money in just one or two years. It’s complete rubbish!
Successful investment, like paying off a mortgage, building a career, or raising a child, takes time and patience. Your time horizon should never be measured in months or even a few years, but rather in decades. It won’t help you get rich quick, but it will help you get richer – and that’s all that matters.
Lessons Learned from 2020 for Investing in a Changing World