How To Boost Your Portfolio Returns

Authored by Edul Patel, CEO, and Co-founder of Mudrex

Every investor looks for ways to preserve and increase their portfolio value from time to time. But for that to happen, you need to save money regularly and invest consistently. Depending on the risk tolerance, time horizon, and the amount of principal that can be invested, there are many ways to grow an investment portfolio. Here are some of the main ways to boost your portfolio returns.

Start Diversifying your Portfolio

If you have allocated your investments disproportionately large in case of the rising market, you may gain a lot during the bull market. But the sad reality is that the bull market never lasts. Hence, diversifying your portfolio becomes vital. Markets fall much faster than anyone can predict or imagine. So, preparing for such downturns through diversification can add tremendous value to your portfolio. It can also help maximize your gains in a bull market when other sectors are doing better. Even though you have an excellent stock allocation, make sure that you maintain appropriate percentages of fixed income and cash equivalents. This can help you cover the losses better at times of market crash.

Rebalance as required

Rebalancing is one of the best and intelligent ways to channel your returns. For example, if you have a diversified portfolio consisting of 50% of stocks, 20% in gold, 20% of bonds, and 10% in cash. If your stocks are doing great in the market, you should consider rebalancing your portfolio by increasing the investment in stocks. This is also vice versa during bear markets. If stocks are declining, you should rebalance them to decrease your position. It will enable you to take advantage of gains and recover losses parallelly. Rebalancing can enhance portfolio performance to a great extent.

You can rebalance your portfolio in three ways:

• By adding new cash to the under-weighted part of your portfolio.
• Selling a portion of your portfolio that you feel is overpriced.
• Taking withdrawals from over-weighted asset classes.

Make the Best of Tax-efficient Investments

Income tax on your investment earnings can have a significant impact on the performance of your portfolio. So, whenever there is a chance to minimize investment taxes whenever possible, you should opt for it. One of the best ways to do it is by avoiding heavy trading. So, investing in index-based exchange-traded funds or ETFs can be a good idea. This can minimize the taxation impact on the short term gains.

Consistent Investing

A portfolio with regular contributions can grow dramatically. You should never allow market movements to affect your contributions. Especially during the bear market, continuous contribution, in the long run, can yield significant returns. It can be challenging at times to continue investing during both bear and bull markets. But keep doing it! This way, you can benefit from rupee-cost averaging too. For example, if you keep adding Rs 500 worth of stocks every month to your portfolio, you would have bought 12 separate purchases over the year. RCA will help you buy more stocks when the markets are low and lesser units when it is high, benefiting from investing across the market.

Set Right Goals  

When you think practically, it is not easy to become a millionaire overnight. But, with consistent efforts and the advantage of time and patience, one can become a millionaire. It is a long-term project. Whether paying off a mortgage or saving for retirement, all these are long-term goals. A realistic goal can be achieved through proper planning, depending on the purpose you want to achieve. For example, if you are in your 30s and planning for retirement, consistent investing in the right asset is crucial.

Avoid Market Timing

In any market, it is impossible to know which segments will outperform from year to year. By holding a globally diversified portfolio, you are well-positioned to seek returns wherever they occur. Since there are no discernible patterns to make better returns, diversification can be the key. 

Take the Right Amount of Risk

As most investors believe government bonds to be the safest option to invest in, they might not earn you enough money to outpace inflation. Too much risk can also sometimes lead to losses, while less risk might not yield you the suitable returns. So, finding the best balance between risk and returns in a way that will help your portfolio to grow is significant.

Reinvest Dividends

Dividend reinvestment can be crucial for boosting your portfolio returns. Unless the dividend income is needed in case of emergency, reinvesting back on stocks, bonds, crypto or any other asset will grow your portfolio. This can be one of the good strategies because it is cheap and automatically provided as a feature by most investing platforms.  

Conclusion

There are only a few methods for boosting your portfolio returns, so choosing the right one at the right time is critical. In order to achieve better returns, setting a long-term plan and maintaining discipline can be best.