Everyone wants better investing returns, don’t they? I certainly do.
Because with better investing returns, you can hit that savings target more quickly, retire earlier, and head off on that world cruise sooner.
Yet while purportedly professing to want better investing returns, huge numbers of investors instead follow investment practices that turn out to seriously sap those returns. As academic research has highlighted, many private investors significantly underperform market benchmarks.
Yet turning this dire performance around need not be especially difficult. And following just three simple and straightforward investing strategies might go a long way to improving investment performance, and raise investment returns.
Let’s take a look.
1) Hammer down on costs
Fees are a major drag on performance. Not only do many collective investments – investment funds, investment trusts, and ETFs – charge high fees, but brokerage platforms then add to these.
Some brokerage platforms even do so on a percentage basis, acting as a tax on wealth.
Fairly obviously, a ‘flat fee’ brokerage is better for your investing returns than a percentage-based one. And equally obviously, a cheaper fund, trust or ETF is better than an expensive one, all else being equal.
Yet huge numbers of investors simply pay higher fees through inertia – they just won’t look around the marketplace, and switch.
And don’t forget that there’s an even better way to cut the cost of investment funds, investment trusts, and ETFs: invest in a diversified portfolio of individual shares, instead. Be your own fund manager – and don’t pay fund management charges at all.
2) Don’t try to time the market
Timing the market is notoriously difficult. It’s tough for the professionals, and even harder for private investors like you and I.
As I write these words, for instance, the FTSE 100 is at over 7,200. Will its next move be up, or down? I don’t know, and I don’t know anyone who does. And given that it was at 5,500 less than a year ago, is it ludicrously over-valued at present levels – or not?
Fairly obviously, it was a better buy at 5,500 than it is at 7,200, but that simple fact won’t make it get cheaper. And investors with money to invest may have a long wait.
Better by far, I think, for those who can – which is most of us – is to invest regularly, putting in so much money a month. That way, you won’t have to worry about market timing, and you’ll automatically be buying more when the market is cheap, and less when the market is dear.
Sure, if the market plunges, then invest even more (as I do). But let it be the icing on cake, not the cake itself.
3) Be an investor, not a trader
A very common mistake is to imagine that the words ‘trader’ and ‘investor’ mean pretty much the same thing.
They’re not: simply put, investors take stakes in businesses, taking a view on those businesses’ fundamentals, while traders buy and sell in anticipation of often short-term price movements.
The media doesn’t help, with its news-driven focus telling us things like “investors sold out of XXX today, and moved into ZZZ instead”. Which is, of course, completely ridiculous, when you think about it: for every share in XXX that has been sold, one will have been bought by someone else.
Every trade costs money – adding to fees. And ‘churn’, as it’s called, can substantially detract from investing returns.
Don’t trade: invest.
The bottom line
So there we have it: three strategies to boost your investing returns.
Difficult? Complicated to execute? Time-consuming? No, no, and no. In fact, I’d suggest that investment strategies don’t come any more simple and straightforward.
So why don’t more private investors follow them? No, I don’t know, either.