- \ Gerard Gruber
- July 12, 2023
You’ve worked hard for your money, and now you want to put your money to work for you in the best way possible. But do you ever look at your quarterly statements and wonder what more...
You’ve worked hard for your money, and now you want to put your money to work for you in the best way possible. But do you ever look at your quarterly statements and wonder what more you could do?
In order to help you do some spring cleaning within your portfolio, we’re sharing five simple ways you can increase your investment return through rebalancing, reinvesting, and long-term growth behavior:
1. Rebalancing
If you think back to when you first built your investment portfolio, you purposefully chose a target asset mix based on your goals, investment time horizon, and risk tolerance. But it’s possible all or some of those things have changed and/or market fluctuations have occurred to cause your asset allocation to get out of sorts.
For example, you could have originally set a target mix of 60% stocks and 40% bonds. But with the volatility of the recent market, your portfolio could have drifted to a 70/30 mix, which is more risk than you are comfortable with and more risk than the original allocation. So, you would want to rebalance to realign with your goals.
2. Reinvesting
When your investments make positive returns, you have the choice to either receive the distributions in cash or reinvest the dividends, interest, or other form of earned distribution to purchase additional shares in that stock or interest payments in that bond.
Reinvesting, therefore, can help maximize your returns through long-term compounding. You buy more shares with your dividends, which increases your dividend the next time. So, you can buy even more shares again, onward and onward.
3. Long-Term Growth
In order to set yourself up for retirement and your other big financial goals, you have to get your portfolio designed for long-term growth. Rebalancing and reinvesting will help. In addition, one of the best ways you can reduce risk and maximize your investment returns is to diversify.
Diversifying your portfolio — that is, choosing a variety of assets — will lessen the blow if any one individual investment doesn’t do as well as you thought. It will also help mitigate any market fluctuations, such as the ones we have experienced the past few years starting with the COVID-19 pandemic, and set you up for long-term success.
4. Reduce Investment Cost
Sometimes reducing the fees you pay to invest your money can make a big difference in your investment returns, especially over a long period of time. There are management fees, such as those charged by a financial advisor or broker, as well as some that are a little more hidden, such as those in the fine print of your fund’s prospectus document.
For any fees that are charged based on a percentage point, that impact can be compounded and really take a big chunk out of your overall return. As an example, you have a starting investment of $20,000 and you contribute an additional $500 per month for 30 years assuming a 7% annual return. Here is a comparison of total return using the Dinkytown Compare Investment Fees Calculator:
- With a 0.1% fee: $725,296.27
- With a 0.25% fee: $703,442.88
- With a 1% fee: $604,498.20
With the 0.1% fee, you would keep nearly $121,000 more in your own account compared to a 1% fee.
5. Discipline
One of the biggest mistakes investors make is overreacting to market conditions. They sell their investments when the market starts going down and then buy again when prices are too high. Therefore, if you can be different by staying disciplined, riding out the highs and lows, and not letting your emotions guide your investment decisions, you will increase your
return.
In order to stay disciplined when everyone else is panicking, make yourself a plan that you can refer to that will help you make decisions when emotions are running high. Write out your investment goals and timeline. This should include retirement, big milestones like college and weddings for your children, and a second home and big purchases like your dream sailboat. Next, list your risk tolerance. What are you willing to take and what makes sense for your overall financial plan?
Need help putting together your investment goals and timeline? Schedule a call with Harbor West Wealth Management today. Learn more about how our team of experienced financial advisors can help you increase your investment return, including rebalancing your portfolio, reinvesting dividends, setting yourself up for long-term growth, reducing investment costs, and staying disciplined.
This information is for general purposes and is not intended to provide specific investment advice or recommendations. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Individuals should always consult their own financial or tax advisor regarding their specific situation before acting on any information provided. Harbor West and Geneos Wealth Management, Inc. do not provide tax or legal advice.
Securities and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC