How to Get Higher Returns Annually on Your Investment
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As an investor, there are two primary things you always want to consider: minimizing risk and maximizing your return on investment. Generally, to get greater returns, you will need to make riskier investments. However, this does not always need to be the case.
For the past few years, the inflation rate in the United States has consistently hovered around 2% per year. This means, in terms of purchasing power, any investment that generates less than 2% per year is functionally a loss.
Your goal should be not only to match the inflation rate, but to have your purchasing power actually grow. By keeping just a few proven principles in mind, you’ll find achieving a greater rate of return on investment (ROI) is something that is easily within reach.
Diversify Your Investment Portfolio
The principle of financial diversification is the surest way to minimize risk. This can be done without sacrificing your potential for reward. Though you may not know which specific assets will increase or decrease in value, you can be confident in the fact that markets are generally increasing in value over time. Instead of going “all in” on a specific stock, it makes more financial sense to bet on the financial industry as a whole.
The best way to diversify your portfolio is to invest in a wide variety of different asset types. A well-diversified portfolio might feature stocks, bonds, life insurance, and even real estate. It might also feature assets from international markets.
Additionally, within each category of assets you own, you can diversify your portfolio even further. Begin by investing in assets that are generally perceived to be low risk. Consider an index that is tied to the Dow Jones Industrial Average. Then, as time goes on, look at some options that offer both a higher risk and a higher reward.
Think About the True Value of an Asset
When it comes to creating a successful financial portfolio, the importance of timing cannot be overstated. Though the phrase “buy low, sell high” might sound a little cliché, when done correctly, this can be a very rewarding strategy.
Most stocks will experience various ups and downs throughout the course of their lifecycles. Don’t wait until a stock is in very high demand. If you do, you will end up paying a lot for something that has already achieved the bulk of its growth. If you abandon a stock while it is objectively undervalued, you could curtail its potential for growth.
“Buy low, sell high” is a general rule of thumb. This practice makes it quite possible to achieve a greater return on your investment. Obviously, before you make any firm financial commitments, do plenty of research. Ensure you understand your potential for both risk and return. But by adhering to the principle of diversification and recognizing the importance of market timing, you can begin moving your portfolio in the right direction.
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