Despite a small group of traders who are comfortable with their income and portfolios, most investors have a goal to increase their nest eggs over time. There are a number of approaches when you are trying to grow your portfolio and the best way will depend on many factors (e.g. risk tolerance, the amount of principal that can be invested, time horizon, etc.).
It isn’t an easy task for beginners, but don’t worry. Here you will read everything you need to know about growing your portfolio and learn useful strategies to help you accomplish your goals. Let’s get started!
Set Clear Objectives for Your Investments
Knowing why you are investing and what to expect is absolutely necessary. You may face a lot of problems in the stock market if you don’t have a direction. Average investment objectives usually include capital preservation, capital appreciation, speculation, and income. This strategy is particularly useful when you are trying to improve your trading portfolio. Be aware that an income portfolio will look very different from, for example, a portfolio aiming to achieve capital appreciation. You should expect that they will perform differently over time. If you are not entirely clear about your goals you can end up disappointed in your returns, so make sure you don’t forget about this important strategy.
Minimize Costs
Finding a way to reduce your costs early is more important than you think. Your expenses may not seem like much, but they add up over time. Here are some small expenses you may not even think about, but reducing them can make a difference:
- Various fees
- Brokerage commissions
- Mutual fund expenses
- Sales loads
If you minimize your costs now, you could end up saving thousands of dollars by the time you retire.
Minimize Investment Turnover
Do you know the saying “Don’t rent stocks, buy businesses.”? The short-term stock market can be capricious and irrational, so if you don’t plan to own a business for at least five years, buying shares is not the best move. There are a lot of tax advantages when you are holding onto investments. For example, the taxes are much lower for profits on long-term investments, the same as dividends.
If your main goal is trading you may consider short-term positions. But be aware that trading strategies seek to capitalize on the short-term volatility and therefore differ from investment strategies.
Don’t Overpay for an Asset
Price is capital to the returns you earn on your investment portfolio and there is no getting around it. Prices often fluctuate in the short-term, which means that every investment (even a good one) can be overpriced. Make sure you research the company, especially the finances, so you can be confident that you are paying a fair price. This strategy is called fundamental analyses and it means analyzing every detail of the business to determine its financial health.
If you, however, have reasons to believe that the company will grow significantly even that its finances are far from perfect today, then the low price doesn’t mean it’s a bad investment. There are a lot of factors to consider.
Diversify
Many investors often refer to a classic saying “Don’t put all your eggs in one basket.”, meaning – you shouldn’t put all your money in one investment. Of course, you should seek high-quality stocks with steady dividends, but choose to invest in a few companies with similar benefits.
If you diversify, the risks will be spread across different sectors, management styles, industries, or geographic regions, so if something negative happens (bankruptcy, natural disaster, etc.) only a small segment of your portfolio will be impacted. You will feel the effects for sure, but imagine how much your business would suffer if you had put all your money in one region or a single company.
Market Timing
Investors tend to follow the market closely so they can beat the buy and hold strategy. It’s important to time the markets correctly, so you can consistently buy stocks at low prices and sell them when the price is high. This isn’t as easy as it seems, but when you master this strategy you will yield much higher returns. However, if you don’t have time for it – it’s better to avoid it and focus on some other strategy. If you don’t commit to it every day it can increase the risks, and that is the last thing you want.
There you go! These are some simple methods for improving your portfolio and making money grow. There are a lot of strategies out there, so make sure you keep learning about them. The stock market can be very exciting and your investments can pay out very well if you are careful, smart, and know when to take a risk.