Looking for a way to get higher returns on your investments? Well, Money magazine has some ideas for you. Here are Money's three strategies for higher investment returns:
1. Think portfolio, not funds. Before you start picking individual funds, get a plan. Basically, you want to build a portfolio that includes a variety of different types of stock funds - ones that invest in large stocks, small stocks, growth and value, international shares - and bond funds.
2. Rebalance your portfolio. Not every investment you own is going to earn the same return year in and year out. That means that over time your portfolio will deviate from the original mix you set, or, to put it technical terms, "get out of whack." To bring your portfolio back to its original mix, you should rebalance it every year. There are two ways to do this.
3. Keep shoveling in new cash. Many people have the mistaken notion that great investing is what builds wealth. Well, that helps, but the smartest investing moves in the world won't amount to much if you're investing only small sums of money.
This is pretty much what I do, investing my money mostly in index funds. But the REAL key is #3. I'm like the Energizer Bunny of investing -- I keep adding and adding and adding...cash, that is, to my investment accounts. Best of all, it's done automatically -- my 401k contribution is made even before I get paid. And once I do get my monthly check, I have an amount automatically moved from my checking account to an investment account.
Then all that's added is time and the power of compounding. This is how average Joe's can become rich. Yes, getting rich is (much) simpler than you think.
What are the two ways to rebalance your portfolio every year?
Posted by: Paul | April 24, 2006 at 01:29 PM
Paul -- Click through the first link above and read the whole article for more details.
Posted by: FMF | April 24, 2006 at 01:35 PM
Which brokerage company do you use to regularly add to your investments without having a large portion eaten up by commissions?
Posted by: Nick | January 04, 2009 at 07:41 PM
Nick --
Vanguard (I invest mostly in index funds -- http://www.freemoneyfinance.com/2007/03/why_i_like_inde.html ). For stocks, I use Ameritrade.
Posted by: FMF | January 05, 2009 at 07:58 AM