The idea of boosting stock market returns seems fanciful right now. Thanks to the mayhem seen in share prices in 2022 so far, just keeping my head above water feels good enough.
Then again, I’m a long-term Fool. In other words, I focus — as much as I can during these uncertain times — on building my wealth slowly, but as surely as possible. And I reckon I can increase the probability of a very decent outcome through a simple set of moves.
1. Tax? No thanks
One of the easiest ways of boosting my stock market returns is to ensure that I continue to hold everything inside a Stocks and Shares ISA or SIPP (Self-Invested Personal Pension). This means I won’t pay tax on any profits I make or whatever income I receive. Thanks to the brilliance of compounding, that becomes a very big deal over many years and decades.
There’s another thing I like here. Throwing money into a SIPP will give me tax relief related to my normal tax band. For someone who pays the basic rate, for example, every £800 put in will be topped up with an extra £200 from the government. This means more money to invest and, again, the potential to compound at a higher rate.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
2. Investing not trading
As exciting as it looks, trading stocks very quickly can be risky. After all, no one truly knows where prices are going from one day to the next. Unless I have an ‘edge’ on my fellow traders — and I doubt I do — there’s a good chance I could lose money rather than make it.
Essentially, this is why I’m an investor. And one way of ensuring that I maintain the mindset of an investor is to take advantage of a regular savings scheme. This is a service provided by many brokers that allows clients to buy shares at a much-reduced commission. We’re talking £1 or so — around 10% of the usual fee. Sometimes, there’s no cost at all. The only caveat is that my money gets invested on a fixed day in the month.
That might sound restrictive, but I actually think the opposite. It means I keep putting money to work rather than sitting on the sidelines trying to time the stock market bottom. However, it also avoids costs getting out of control as they might with day-to-day trading.
And by making these savings, I have more cash to invest to (eventually) boost my returns.
3. Disregard dividends
I like receiving dividends as much as the next person. In fact, one of the few things I’m enjoying at the moment is seeing this passive income hit my account.
That being said, a final way of boosting my returns is to learn to forget about these payouts. To be more specific, it’s about forgetting to spend them. Instead, it can be far better to simply reinvest what I receive.
This move is particularly relevant today. With the stock markets having struggled for months, a lot of high-quality UK stocks are now available at knock-down prices. So, if there’s ever been a time for me to be disciplined and throw money back to where it came from, it’s now.
In a few years’ time, I’m very confident the sacrifice will be worth it.