I always think of what I could do to squeeze more juice out of my investments. This is human nature as we always compare the stocks we buy and sell to the best or worst performers over the same period. I can never perfectly match the top performers, but when looking at the top stocks I can buy now, there are some things I can look at to boost my return.
Finding the top stocks to buy now
Firstly, I can look at which areas are hot right now and buy the top stocks in that sector. This should allow me to outperform the FTSE 100 index as the sector should lead the way.
For example, at the moment I think that healthcare and pharmaceutical stocks are going to perform well. After all, the world’s population is ageing, and people are spending more on health. In the short term, the need for vaccines and solutions to Covid-19 should see demand remain elevated in this area.
This example is a case of momentum investing. Buying the top stocks in this area now should allow me to ride the wave into the future. Yet the fact that I’ve researched this area means that I’m not simply blindly following the crowd. This contrasts to investing in so-called Reddit stocks that have few fundamental reasons for their rise in price.
Averaging my buy price and then holding
Another way I can look to boost my investment return is by averaging-in my purchase of the top stocks to buy. Let’s say I bought a stock today with a share price of 100p. Next month, the share price is 90p. In two months’ time the price is 95p, and by the end of the summer the price is 105p. I’d achieve a lower average purchase price (and a higher profit) if I invested in chunks each month, rather than all in one go at 100p.
I’m not saying that I have to buy shares in the same stock each month for years. But investing over the course of three-to-six months enables me to reduce the volatility seen in the picks that I believe are the top stocks to consider buying.
The final point I can consider is that once I’ve bought the stocks, I’m better off holding them for the long term. Constantly selling and buying different stocks eats away at my overall investment return. If my stocks aren’t in an ISA, I’m liable for capital gains tax on profits made too. And constant buying and selling means I also incur lots of transaction costs.
Rather, by holding the top stocks, I could benefit from strong performance for years to come. In this way, my overall return could be greater than trying to be too active.