When it comes to investing, we are all familiar with the advice of starting early and remaining invested over the long-term to maximise our returns. However, there are also other actions you can take to ensure that you make the most of your investments on your journey.
1. Optimise your pension plan
If you have some form of income and you are working for an employer, you likely already have a savings account that is helping you slowly build your retirement fund. One of the best ways to optimise your pension plan and maximise your return on investment is to make sure you understand how it works.
Depending on where you are in the world, your tax advantages and investing options may differ. However, a good first step is always to make sure you understand what funds you are investing in, how they are performing, and how much in fees you are paying for those investments.
It can be overwhelming to learn about different types of mutual funds, index funds, ETFs, stocks, and bonds, but it is a wholly necessary step. While your employer will be sponsoring you, what you choose to invest in in your account will ultimately be what generates your rate of return.
Read up on different funds. Educate yourself in how much you are paying in management fees and try to scale them down. It is also possible to ask for a professional opinion from your pension plan provider on how you can optimise your existing plan based on your risk appetite and financial status.
2. Open a brokerage account
One of the most obvious ways to maximise your current investments is to… well, start investing outside of your pension plan, if you haven’t already been doing so.
Opening a brokerage account does not obligate you to start investing immediately, nor does it mean you have to become one of those traders who are constantly watching market charts and opening and closing positions. You can instead take it slow and aim for long-term growth.
The good thing about most brokers these days is that they offer over tens of thousands of funds, ETFs, bonds, and stocks for you to choose from, and you can often hold your investments for as long as you like. You can take your time in figuring out which combinations of products work best for you and pursue them at your own pace.
Additionally, if you are a beginner who is unsure whether you even understand how investing works, brokers also often offer demo accounts for you to first get comfortable with their platform and system before you risk your capital.
3. Automate your investments
Studies have shown that people who automate their savings and investments are likely to save and invest more because it takes the complexity of decision-making out of the process.
If you have clear financial goals but do not have time or you are not comfortable with manually picking out specific funds to invest in, you can always opt for the use of robo-advisors.
Also, learn more about absolute returns funds that can help you generate consistent returns no matter the market conditions. They often charge lower fees compared to traditional financial advisors, making them an attractive option for those who want to save on costs.
Robo-advisors are digital platforms that provide automated investment services. They use passive indexing strategies and therefore require minimal human supervision and guidance. They also often require low opening balances, making them relatively accessible to retail investors.
As with all services, robo-advisors do cost some money. However, they are often relatively inexpensive, and the return investors get can massively outweigh the initial cost. The bottom line is, if automating your investments will help you invest more, then it is a good decision.
4. Keep your investment fees down
One thing that many people may not be so aware of is that miscellaneous investment fees, such as commission, management and account fees, and fund and service charges. These can add up and make a small dent on your overall returns.
These fees are normally deducted from your investment monthly, quarterly, semi-annually, or annually, and a good way to keep them down is to firstly, be aware of how much you are paying and what exactly you are paying for. From there, you can see if there are any costs you can cut such as by using a different service or switching brokers entirely.
In general, looking for the cheapest fees is a good way to start. However, you should never neglect the entire package of what a broker or robo-investing service offers you. If a broker charges slightly higher fees but also offers great customer service and investing tools that suit you, sometimes it is worth the extra bit of money.
5. Diversify your portfolio
Diversifying your portfolio is an essential way to mitigate investment risks, which, in the long run, can potentially help to maximise your returns. Though there are economic and political developments that can make waves across the entire market, such as the 2008 financial crisis, where we saw products across the board plummet, they do not happen very often.
When you spread your money across different sectors, regions, and investment types, you are much less likely to lose everything you have invested in one go because of any one catastrophic event.
Diversifying your portfolio may be time consuming at first, as you will need to have a broad understanding of different investment types. However, it lowers your investment risk considerably when you do not have all your eggs in one basket. You can also automate the selection process or ask for the professional opinion of your broker.
At the end of the day…
Investing is a long journey. If you want to maximise your returns, you need to be patient and stick with it for years to come. Therefore, before investing in anything, you should always ensure you have sufficient money in your savings account or enough cashflow that you can use as an emergency fund. Ideally, you want to be investing money that you will not immediately need in the next five to ten years, so that your investments can really have a chance to grow.