In today’s ever-changing financial landscape, investors need to be savvy and strategic to maximise returns. With new investment products and options constantly emerging, it can be challenging to determine the best places to put your money.
Follow these investment strategies to help modern investors make the most returns on their money
Key Points
- Cover the basics by contributing to your 401k, saving 10-15% for retirement, and building an emergency fund before diving into other investment options.
- Maximise tax advantages by fully contributing to 401ks and IRAs, opting for providers that offer low-cost index funds.
- Implement a long-term buy-and-hold strategy focusing on diversified index funds, and rebalance your portfolio annually to maintain asset allocation.
- Leverage technology through robo-advisors and micro-investing apps to streamline your investment process and minimise fees.
- Continually educate yourself by following reputable financial news, working with a trusted advisor, and balancing your investment risks through diversification.
Table of Contents
Start with the Basics: Retirement and Emergency Savings
Before investing extra cash, make sure you have the basics covered. Contribute enough to your employer’s 401k to get the full company match if offered. Aim to save at least 10-15% of your income for retirement.
Next, build up a liquid emergency fund with 3-6 months’ worth of living expenses. This quick cash can prevent you from going into debt or liquidating investments in a crunch.
Take Advantage of Tax-Advantaged Accounts
Max out contributions to tax-advantaged retirement accounts like 401ks and IRAs each year. The tax savings you receive now can compound into much more money down the road. Do your research to find IRA providers offering excellent low-cost index funds to minimise fees.
Successful Modern Investors Invest for the Long Term
The most successful modern investors use a buy-and-hold strategy focused on long-term growth. Trying to time the market rarely pays off for amateur investors. Instead, invest money you won’t need for at least 5-10 years.
Opt for diversified index funds that represent the whole stock market. Reinvest dividends to compound earnings. Let your money grow steadily over decades.
Maintain a Balanced Portfolio
Structure your investments across different asset classes to balance risk and reward. Aim for a mix of stocks (70-80%), bonds (10-20%), and cash/cash equivalents (5-10%). Further, diversify within each asset class. For stocks, invest across market caps, sectors, and even global regions. For bonds, buy a mix of government and corporate bonds with varying durations.
Rebalance Regularly
Revisit your asset allocation at least once a year. As some investments grow faster than others, your percentages will shift. Rebalancing involves selling assets that makeup too large a share of your portfolio and using the proceeds to buy more of those that now make up too little. This forces you to sell high and buy low.
Utilise Dollar-Cost Averaging
Dollar-cost averaging means investing money in set intervals over time rather than in a lump sum. This smooths out the impact of market volatility. You automatically buy more shares when prices are low and fewer when they’re high. Consider setting up automatic monthly transfers from your checking account to investment accounts.
Seek Low Fees
High fees can seriously cut into long-term returns. Seek out index funds and ETFs with rock-bottom expense ratios. Pay close attention to the fees charged by 401k providers and financial advisors as well. Don’t overpay for investment management services.
Leverage Technology to Streamline Investing
Technology has opened up exciting new possibilities for modern investors to maximise returns. Take advantage of robo-advisors that use algorithms to automatically invest your money and rebalance periodically. The fees are extremely low compared to human financial advisors. Popular robo-advisors include Betterment, Wealthfront, and Ellevest.
You can also use apps like Acorns that automate micro-investing. Link them to your credit or debit card and they will round up your transactions to the nearest dollar, investing the spare change in diversified ETF portfolios. This makes growing your money completely effortless.
Online investing platforms like E*TRADE, TD Ameritrade, and Charles Schwab allow you to easily buy stocks, bonds, mutual funds, and more commission-free. You have access to powerful research tools and can manage your portfolio on desktop or mobile.
Consider Alternative Investment Options
Beyond stocks and bonds, some alternative assets can provide diversification, hedge against inflation, and boost returns. Real estate investment trusts (REITs) offer exposure to real estate without the headaches of being a landlord. Invest in REIT ETFs or funds focused on areas like apartments, hotels, offices, etc.
Peer-to-peer lending websites like LendingClub and Prosper allow you to invest in personal loans and earn attractive returns from interest payments. This provides income similar to bonds.
For accredited investors, private equity can provide the opportunity to invest in private companies before they go public. This allows you to get in early and hopefully multiply your money down the road.
Work With a Financial Advisor You Trust
Though opting for low-cost passive investing is wise, a human financial advisor can still provide value for modern investors, an advisor can help you develop a customised investment plan based on your specific goals, time horizon, and risk tolerance. They can encourage you to stick to your long-term strategy during market turbulence.
Vet potential advisors thoroughly and look for fee-only fiduciaries. Ask about their qualifications, services, investing philosophy, and client specialties. Schedule initial meetings with multiple advisors before deciding. A trustworthy advisor who helps you make informed decisions can be a worthwhile investment.
Follow Financial News and Education
Continuing self-education as an investor is vital for maximizing your returns. Follow financial news sites like The Wall Street Journal, Bloomberg, and CNBC to stay informed. Listen to investing podcasts and read books by experts like Warren Buffett. Follow finance thought leaders on Twitter who share market insights.
Stay up to date on changes in tax laws and policies that could impact your investment strategy. Take advantage of free educational resources provided by reputable sources like Vanguard and Charles Schwab. The more knowledgeable you become about investing best practices, the better your decision-making will be.
Mitigate Risk with Diversification and Balance
While seeking maximum returns is important, smart investors also focus on risk management. Diversifying across many uncorrelated assets and rebalancing helps mitigate risks from market volatility and any single investment failing. Maintain a balanced portfolio not overly weighted in any one asset class, region, or sector.
Limit your exposure to more speculative investments like cryptocurrencies, IPOs, and penny stocks. These tend to carry higher risks compared to blue chip stocks and broad index funds. Don’t invest emergency savings or money you’ll need within 5 years. Seek a mix of safer investments like bonds to balance riskier ones like small-cap stocks. A prudent, balanced approach allows you to earn solid returns while minimising risk.
Conclusion
Following these tips can set you up for investing success. The key is staying disciplined, diversified, and focused in the long run. Tune out short-term market swings and trust your money will grow if invested wisely over decades. With the right strategy, your dollars can multiply into a comfortable nest egg.
This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all modern investors, and if in doubt, an investor should seek advice from a qualified investment adviser.