7 Ways to increase your Investment returns in 10 minutes or less
2008 February 16
Here are some simple ways to increase your investment returns without much work.
- Switch to Index Funds – Studies show that 70% of actively managed funds fail to beat their benchmark over the long term. If you can’t beat ‘em, join ‘em.
- Lower your expenses – Numerous Morningstar studies show that mutual fund expense ratios are the single best predictor of future performance. All else being equal, a cheaper fund will tend to outperform a more expensive fund.
- Take advantage of your employer match – If your employer matches 50% of your contributions up to 6% of your salary, which is a typical match, that’s an immediate 50% gain on your investment. You can’t get that anywhere else.
- Minimize your taxes – Put tax-inefficient funds such as bond funds, small-cap funds, and actively-managed funds in your tax-advantaged accounts. Your funds can compound for you at a higher rate without the drag of taxes.
- Diversify – By not putting all your eggs in one basket you greatly reduce the chances of your portfolio suffering a catastrophic loss from which you won’t be able to recover, increasing your long-term returns.
- Rebalance – Rebalancing your portfolio annually forces you to buy low and sell high as you trim back your recent winners to buy more of your recent losers which may be poised for a recovery.
- Don’t cash out your 401k when you change jobs – Cashing out your 401k when you change jobs is financial suicide. Not only do you pay income taxes on the amount you cash out but also a 10% penalty, not even counting local or state penalties. Even worse, you are borrowing from your future and will miss out on decades of compounding. The end result could be a deficit of hundreds of thousands of dollars. Roll over your401k to an IRA instead.
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