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Tips For Getting The Most Out of Your Investment Portfolio
In order to create a large investment portfolio, you have to invest frequently, save money on a regular basis and also know how to stay the course for many years. However, there are various strategies that you can implement starting today in order to make the most out of your investments. In this read, we are going to take a look at some of those strategies.
Diversify Your Portfolio
Those who are fond of investing already know the importance of diversification. However, similar to investment expenses, it is an aspect that can be easily lost when the market goes up. After all, if the allocation of your stock gets disproportionally huge in a bull market, it will certainly improve your portfolio performance.
However, the issue is that bull markets never last. Markets tend to fall faster than they rise and so you might find yourself in trouble if you had ignored ideal diversification in the past several years. Proper diversification is all about getting ready for changing situations.
Regardless of how well your stock investment is doing, ensure you maintain feasible percentages of your portfolio both in cash and fixed income investments. This will help reduce the losses you will encounter in a bear market. Keep in mind that reducing losses during a falling market is just as important as maximizing your profits in a rising market.
Search for Lower Cost Ways of Investing
It is easy to overlook the cost of investment in a rising market, especially if you are making money. However, the impact of these expenses tends to add up in the long haul and not in an appealing way.
As a matter of fact, reducing your expenses just 1% can make a substantial difference in your investment portfolio’s performance over time. Let us assume that you earn an average of 10% per annum on your portfolio, but pay 2% in the form of investment costs. This leaves you with a net rate return of 8%. So, if your investment portfolio is £100,000, it will grow to £466,000 in two decades.
If you can reduce the annual investment cost by half, then your net return will be 9% and after two decades, your portfolio will grow by £560,000. That is a difference of £94,000, simply earned by reducing your investment costs by just 1%.
Think Long Term
Perhaps the worst delusion that affects many investors is the ‘get rich fast’ mentality. It is particularly hard to resist in a market that is rising. Everywhere you look, there are the so-called ‘experts’ claiming that you can double or even triple your investment in just one year by following their plan. In most cases, this is just sheer nonsense.
Just like building a career, raising a child or paying off your mortgage, successful investing calls for both time and patience. Avoid measuring your time in months or even years, but do so in decades. If you invest £10,000 per annum in an index fund that has an average rate return of 8 perent over 3 decades, you will end up with around £1.25M. This is not a get rich quick strategy, but it is a means of getting rich and that is what really matters.
In order to make your strategy work for you, you will need to adopt a long term view, maintain the discipline to save each and every year and ensure that you don’t get sidetracked by the many get rich quick schemes out there.
If you are already doing this, then you are on the right path. However, you might still want to utilize some of the strategies mentioned in the reading in order to maximize the returns on your investments.