Real Ways to Strengthen Portfolio Returns
Today we are going to discuss what you should do to
generate a good return on your investment portfolio. Many of the people feel
that you should do extraordinary things to generate good returns on investment
portfolio. But on contrary you don't need to do anything extraordinary at all.
Simple ordinary steps which I'm going to discuss now then you investment
portfolio should be doing very well.
Avoid Making Mistakes
Do not do mistakes, if
mistakes are inevitable, keep the mistakes as little as possible. It’s pretty
are needed to learn from your own mistakes. It’s extraordinary to learn from
others' mistakes. Please learn from people who have done mistakes in their life.
Don't do mistakes if mistakes are inevitable keep them under control and make
them as little as possible. If you keep on making repetitive mistakes then you
are bound to decrease returns on your portfolio. Bad investments offset the
returns from good investments and hurt your overall portfolio. One bad mistake
can ruin the whole portfolio and result in irrevocable loss to the wealth. To
steer
clear of them,
practice extra caution and produce flawless output. Getting Swept Up in Market
Euphoria, Trading Too Frequently. , Putting All Your Eggs in One Basket,
Treating Your Home as an Investment are some of the most common mistakes.
You don't have to have great savings
You don't have to have
great savings, you don't have to save a lot of money to generate a lot of
wealth. More important is disciplined ways of savings. If you're saving just a
pretty ordinary 10000 rupees per month and you save it for 30 years and your
investment generate just about 10 percent profit still you able to make more
than 20 million. If you invest 1.5 lakh every year in PPF and you just get 7%
interest then even in 15 years you able to get more than 37 lakhs, and if you
ready to keep it for 15 more years it can be more than 10 million. So it’s more
about habits, if you can save regularly you can do miracles. There is much to
learn from older people who consistently saved a small amount all through their
working lives and were rewarded with a handsome amount, on which a sizeable
rate of return had also accrued. So yes, tiny drops fill up an ocean not just
in poetry but in finance too!
Don't try to aim a particular rate of return
Don't try to aim at a
particular rate of return, see people used to say that my expectation is 15
percent or 20 percent. You should aim at inflation hurdles to be crossed. The
purpose of any investment portfolio is used to generate returns that beat
inflation. You need to have some clear objectives in life, like higher studies
of children. In this case, you need to see that when your children start going
to higher studies, do you able to meet their expenses. You can achieve goals of
life, not particular returns anyway. Money has a purpose, it's just not the
quantity of money that the amount of investment that you've made is for a
purpose for example it could be just an emergency fund or it could be the money
that you'll set aside for your children's education. Realistic expectations of
the rate of return will not only ease the pressure on your mind but will also
enable you to adopt a practical approach when it comes to saving and
investment. Talk to experts to arrive at what exactly the rate of return should
be, keeping the market forces in mind. To return to the question of what a
desirable stock portfolio rate of return is, it would seem that if you, as an
individual investor can achieve returns on your investments that beat the
average investor's long-term average of around 5.5 percent, you're doing pretty
well.
Don't invest in anything which is in fashion
Trending investments
tend to be in the last stage of growth by the time they become trending. When
something becomes the talk of the town and everyone is talking about it then it
is bound to crash as every asset has a particular circle in which it goes up
and then falls back. Normally people are investing in a bull market but they
forget that continuing to contribute to your portfolio during a bear market is
even more important. If your portfolio is falling in value due to negative
returns, your contributions will be the only factor that minimizes the decline.
Investing in IT companies in 2000 but then it gets crashed more than expected.
About 100 percent of the money has been lost for many people by investing in
these IT companies. Another problem is that individuals have a low attention
span when it comes to investing. This coupled with a deluge of information in
media on the latest “in thing" leads to the tendency to invest in the
first thing that catches the eye. Everybody knows the mutual fund disclaimer on
past performance. Yet most choose funds based on recent performance. They
believe that in the coming period, they will make similar returns to that in
the last year.
A conservative
approach, favoring the stocks and bonds that have stood the test of time would
be a safer choice. Do not get tempted by a flash in the pan, but repose faith
in companies and investments showing a consistent track record.
Don’t overexpose yourself to a single asset class
The right combination
of stocks, bonds, and cash can allow a portfolio to grow with much less risk
and volatility than a portfolio that is invested completely in stocks. By
diversifying, you're spreading your risk across different sectors, industries,
management styles, and geographic regions.
Some people say only
properties can work. And some so many people say this stock market is the only
best investment. No single asset class works continuously. Each class has its
time either as the class goes to recycle so successful investment plans should
invest in every asset class and not into one single asset class. Spread your
investments into areas such as asset classes one of the other asset classes. As
they say, do not place all the eggs in one basket. Having a variety of
investments would enable you to absorb the shock of one investment failing,
from the gains generated by another category of asset. Diversification is the
key.
Rebalancing
Rebalancing is all
about returning your portfolio to its original level of diversification. If you
originally planned to have 60% of your portfolio invested in stocks, 30% in
bonds, and 10% cash, it will be time to rebalance if your stock allocation has
grown significantly higher than 60%. Periodically assessing the performance of
your portfolio helps to ensure that you are on track to achieving your
financial goals. If the portfolio performance is below expectations, then you
must analyze and identify the reason for the said underperformance. You should
be willing to let go of one category of investments and have more of another
category, to bring in a balance. It has to be done scientifically, looking at
the rate of return and the prevalent market forced, not arbitrarily.
Take Advantage of Tax-Efficient Accounts
There is a great risk
of taxation on your portfolio, as by getting a 10% return if you have to pay
30% in tax then you need to think again. Trading generates capital gains, and
capital gains result in capital gains taxes. If you have short-term property
gain then you have to pay tax while if we can keep it long-term gain then you
have to pay less or no tax. Those taxes – along with all of the trading fees
involved – can result in a portfolio that doesn’t perform materially better
than a buy-and-hold model that’s invested primarily in funds. In India, PPF,
National Pension Scheme, Sukanaya Smridhi Yojana, ULIP, etc are examples of tax-efficient
investments. . As an investor, one should look for investment options that not
only help you save tax but also generate tax-free income.
Think Long-term
Disciplined Savings
& Patience to let Investments grow are the keys to better returns. Probably
the worst delusion that can affect any investor is the “get rich quick”
mentality. It’s especially hard to resist during bull markets. Everywhere you
look, experts are promising that you can double or triple your money in just
one or two years by following their plan. It’s utter nonsense! Long-term
investments are generally assets like stocks and real estate that you plan to
keep for a while. They provide opportunities for growth in your portfolio
because you know you won’t access the money for a significant period.
