Everyone wants to get maximum returns on their investments. But you have to be very disciplined with your investments and follow some strategies to increase your investment returns.
Here are 5 simple ways that will help you gain better returns on your investments.
#1. Be Consistent.
The best way of wealth creation is consistent investing. The more consistent you will be in investing money, the faster your portfolio will grow.
You can create wealth using this combination of – your regular investments and your gains on investments.
Fix an amount to invest every month and be consistent in that no matter what.
The best way is to be consistent is to automate your investments. Open separate savings account for investment purpose and set an auto transfer of a fixed monthly amount from your salary/default saving account to the new account.
Let me show you the magic of consistent investments.
If you have started investing Rs. 10,000 per month at the age of 30, you would get at an average return of 10%. If you consistently keep on investing the same amount for thirty years you would be able to create a huge corpus of Rs. 20,792,229.
Do you think you can reach the same goal with a casual investment behavior where you don’t invest on a regular basis?
Answer is never.
#2. Diversifying Your Investments.
You must have heard every financial expert saying – “Don’t put your all eggs in one basket”.
And that’s true.
Either you are putting all your money in the stocks or you don’t go beyond fixed deposits because you don’t wanna lose your money, in both cases, you will be at loss.
Here’s you how.
See, if you are investing all your money in stocks, one market crash could wipe out around up to 50% of your investments. Remember, last month’s market crash?
On the other hand, if you keep all you money in fixed deposits, you would lose the chance to make good returns. Secondly, your fixed deposits won’t even help you to beat the inflation because interest rates on fixed deposits are down day by day.
So the best strategy to increase your investment returns is to diversify your portfolio.
For example, you have Rs. 1,00,000 to invest. What you can do you can categorize your investment portfolio into 3 segments like this-
- Safe investment like fixed deposits (expected return 6%)
- Low risk investment like debt funds (expected return 10%)
- High risk – high return investment like stocks (expected return 20%)
You would be able to get overall returns above 15%, and that should be your aim. This will not only increase your investment returns but also pacify the potential suffering in any one segment.
#3. Lower your investment cost.
You can easily ignore your investment cost if your investments are making money. But if you analyze it with a long term vision, your investment cost is reducing your profit. Even a 1% reduction in investment cost could make a big difference.
I will explain this with an example.
Let’s assume you actively trade in stocks. Now if you are having demat account with a full-service broker like ICICI direct who charge brokerage around 0.55% of your trading amount.
That means if you trade 20 times in a month investing Rs. 10,00,000. The brokerage that you have to pay would be Rs. 10,00,000 * 0.55% = Rs. 5,500.
Annual cost would be Rs. 55,00*12 = Rs. 66,000
Have you ever thought about that?
On the other hand, you can open demat account with a discount broker like zerodha that charges Rs. 20 per trade. Similarly, if you trade 20 times in a month investing the same Rs .10,00,000, the brokerage would be 20 trades * Rs. 20 = Rs. 400.
You will be spending Rs. 4,800 as a brokerage in one year.
Now the difference in brokerage is huge. You can save more than 60,000 rupees by selecting the right broker for you.
And you can invest this saved money again, that would yield more returns to you.
#4. Set emotions aside.
If you have observed last month, two things were happening at the same time – panic selling in the stock markets and panic buying in the supermarkets.
Being emotional is in our nature and we can’t deny it. But if you want to increase your returns, set your emotions aside because markets do crash and markets create new records as well, its a never-ending process.
It’s better to set a long-term perspective and stick to that irrespective of the market fluctuations.
You would see if you are able to keep a check on your emotions during low times, you would be able to get better returns in the long run because most of the people sell-off in fear, and that creates an opportunity for investors to buy high-quality stocks at cheap rates that eventually make a positive impact on the overall returns.
#5. Rebalance your portfolio.
Rebalancing is the process of realigning the investment percentage of portfolio segments. Rebalancing involves periodically adding or withdrawing assets in a portfolio to keep the desired level of asset allocation to maximize returns and reducing the risk.
For example, if you have allocated your investments as 50% stocks and 50% government bonds.
Now, if the stocks are performing great, it can increase the stock weightage in the portfolio to 75%.
You may then decide to sell some stocks and buy bonds to get the portfolio back to the desired target allocation of 50:50.
Similarly, if the stocks have dipped to 30% as the chart shows below.
You can buy more stocks to get the advantage of gains when the stocks will rise again.
Conclusion.
You can create wealth by investing consistently, and stick to the course with a long term goal. And the strategies that discussed here can help you improve your investment returns over time.
Which strategy are you going to follow? Let me know in the comments.
